Are flat taxes actually unfair, do they really favor the rich and privileged few, or are they really the best economic system to promote an effective government? A common myth in America is that flat taxes are unfair. This myth results from confusion that flat taxes tip the scales in favor of people who are already financially well off. Many people are confused about what a flat tax is and what it actually does. A flat tax is simply a system that taxes everyone who is subject to it at the same rate, regardless of their income bracket. What is really so unfair about a system that treats everyone equally? On the contrary this is the most fair tax system that our government could ever come up with.
The flat tax does not favor the rich because even under this system people who make more income pay more taxes. However under a progressive tax is one in which tax percentages increase incrementally as your income increases. It is unfair because it seemingly forces higher income people to pay more taxes twice, and at different intervals. They first are paying tax on the income they make, but then they are also paying a tax at a higher percentage rate. Another problem with the current tax system is that it is often to complex, and unfair, and it increases the difficulty of effectively saving money. A progressive tax is just simply unfair because it discourages people to work harder because they will just be penalized for it later.
The most popular argument in favor of a progressive tax over a flat one is that flat taxes are unfair to middle class and lower middle class families because they are taxed much more heavily than are wealthier families. This is simply not true in 2006 top 50% earners paid an incredible 96.5% of the federal income tax, and on the other hand the lower 50% paid a measly 3.5%. Even though under a flat tax the top 50% would still pay more than the lower portion it just would not be so astronomical. Having said that how can people still argue that under this system the rich do not carry their weight?
The rich should pay more taxes than the poor. There is a difference however between someone paying a higher dollar amount tax or paying a higher tax percentage. Under a regular flat system people who make a higher income will have to pay more into federal taxes simply because they have more taxable income. In this system a person who makes $500,000 a year will pay more in taxes than someone who only makes $50,000 a year. If however someone is taxed at higher percentage it becomes unfair to the person with a higher taxable income. They are seemingly being forced to pay taxes twice since they already pay more to begin with, and then they are taxed at a higher rate. Progressive tax reforms are just larger scale plans of financial redistribution that just do not work these same ideas have been applied in many other countries and have failed. Also keep in mind that there are lots of positive ramifications of small business owners who are subject to tax cuts. Businesses will hire more employees usually who are middle or lower middle class workers. This will in turn create jobs, and give average families more spendable income which will boost the economy as a whole because more purchases will be made.
Another major problem with the current system is that often it is just too complex and confusing for some people to understand. It is often unclear to politicians who are in favor of a progressive tax what actually constitutes someone being rich, or financially well off. It is often a judgment call that is not even agreed upon by the people who support a progressive tax. If we are unable to even agree upon what is “rich” how are we supposed to then decide how much higher of a percentage the rich are supposed to pay. An additional major complexity that arises is the difference between what is rich for an individual compared to a small business. An individual making $250,000 a year seems extremely well off to most, but what if it’s not a single person but a small business. To a business this might just be enough to keep them a float. If there income is cut though by these higher taxes then they will be forced to make some very tough layoffs which will increase the national unemployment rate. This could be devastating considering that the Census Bureau and the Small Business Administration states that almost 60 million workers are employed by small businesses, and then when you also incorporate in local, and state government jobs it brings small business employment to almost 43% of the workforce. There is a very big separation between people and businesses. A severe problem with a progressive tax is that it does not make the distinction between individual opposed to small business.
What people who are in favor of progressive income taxes do not realize is that they are just plain unfair. It would be unfair to say that lower income families do not deserve government programs and support, because they made choices that put them in their current situations. For some this may be true but for others there could have been circumstances beyond their control. It is also not fair to punish and penalize people who have made all the right decisions in their lives to get them where they are at. Everyone should be encouraged to succeed to the best of their abilities. What is the incentive behind working hard and staying in school if you know you will just be punished for later? Citizens should be encouraged to work hard and accomplish all they can because of the rewards and financial prosperity that goes along with it.
Progressive tax reforms will be ineffective because they will encourage the higher income workers to start creating names for themselves and job opportunities overseas where they can escape the unfair tax laws of America. They may also choose to stay and spend less time concentrating on making businesses and corporations run better, and more effectively. This will also negatively affect job production because the marginal benefit of job production will fall drastically since there is no real incentive created by the government to make a business more effective. A progressive tax will in theory increase the total tax revenue for the government, but at what cost. It is an inefficient way for the government to increase the tax revenue, because with a progressive tax there will be increased amount of tax evasion due to resentment towards the government.
The most important point in favor of a flat tax is that although flat taxes help bring equality for the wealthy they can also be used to greatly benefit middle class families as well. This is accomplished because all flat tax plans have a loophole. That loophole is that families of large size can receive generous exemptions. An example of this is that a family of four would not be counted on to pay any level of tax until its income reached a level of 30,000. The reason that this works is because the tax burden is laid out equally among tax payers and the load is distributed more fairly. While a progressive tax is in effect this is virtually impossible. Since much of federal taxes are coming from a small percentage of the population. It is unlikely that this small percent of even the wealthiest Americans will be enough to cover the whole tax burden; therefore taxes of some sort are still expected from lower middle class families. This should dispel the myth that a flat tax is implemented just to help the rich get richer. The goal of this system is not to help one demographic of people, but make the economy run more smoothly as a whole. This is the biggest benefit for a flat tax because it offers something that a progressive tax never will be able to which is a means to help all Americans not just the privileged few nor the struggling lower middle class.
In reality a flat tax is really the most fair and intelligent system of taxing people. Anyone who is taxed will be taxed at the same rate. This will not favor the wealthiest of Americans because they will still be expected to provide more of the tax revenue just at a more balanced rate. This will also help to eliminate double taxation since wealthier earners will be taxed purely on the amount they make but not at a higher level than lower earning individuals. A flat tax will eliminate complexities that almost everybody finds extremely difficult to understand, and it will make filing taxes much easier. The economy will be boosted because small businesses can afford to keep more workers on payroll and even add more jobs. These employees most of which will be middle class workers who will now have more disposable income that they are more likely to spend on products that produce money for the economy. This leads to increased revenue for other businesses which improves the economy for everyone. The greatest benefit of a flat tax system is that it can be used to help assist lower middle class families who need it the most, by allowing them a tax break because the rest of taxpayers bear the weight evenly and effectively. There is absolutely nothing unfair about a tax system that treats everyone equally and fairly.
Mitchell, Daniel. “A Brief Guide to the Flat Tax.” The Heritage Foundation 7 July. 2005
Ruane, Christopher. “Progressive Tax Rate”. Idebate Magazine 27 Nov. 2008 http://www.Idebate.org/debatabase/topic_details.php?topicID=264
Armey, Dick. Former House Majority Leader, 2005. “The Case for a Flat Tax”
King, Steve. “How Many Small Business Employees are out there”. U.S. News and World Report 17 July. 2004
Stone, Thomas. “Who Pays Taxes in the USA” The Fair Tax Blog 24 May. 2006 http://www.Fairtaxblog.com/20060524/who-pays-taxes-in-the-usa/