Flat Tax Pros and Cons

As tax season rolls around every year, the complicated codes and laws make the average person cringe. One of the solutions that has been offered year after year is a flat tax instead of the complicated series of different taxes. In a flat tax scenario, a certain percentage of a person’s income, say 15%, would be assessed. It wouldn’t matter if someone earned $100 per week or $10,000 per week. The assessment would be the same. Is a flat tax a good idea? Here are some of the pros and cons to consider of changing over to a system of flat taxation.

What Are the Pros of a Flat Tax?

1. It is a system that is completely fair to every household.
It is difficult to complain about how many taxes one demographic pays over the other when everyone is paying the same percentage of their income. It would also create a natural incentive to earn more, unlike the current tax code which can effectively double the income tax rate in certain circumstances with higher wages.

2. It still generates massive amounts of revenues.
What is problematic about the current tax code is that there is a unique system of credits and deductions that can alter a household’s income dramatically. Many of the bigger credits and deductions go to the households that make more money overall. A flat tax system eliminates all of the mess and still generates a lot of revenues to be used for the public good.

3. It is a system that is much less complicated.
Instead of spending hours trying to determine which deduction can be used here and which credit can be used over there, everyone can use their books to determine their net income and then pay the flat tax based on those figures. It would also lower tax preparation costs because the average person could do their own taxes quite easily.

What Are the Cons of a Flat Tax?

1. It could penalize the workers who earn below the poverty line.
If everyone is required to put the same skin into the game, then workers below the poverty line who may not pay any taxes under the current tax code may be forced to contribute. This means that the heaviest burden in this change would be placed on the poorest demographics.

2. It may increase the overall wealth gap.
The top 1% in the United States currently earn a vast majority of the income in the population. With a flat tax, the potential is there for the wealth gap to continue expanding because the poor would be paying a greater percentage of their income than before, while the wealthy would be potentially paying less.

3. It may not generate as much revenue as the current system.
The flat tax system is based on the trickle down solutions that were tried in the 1980s. In theory it works, but many of the wealthy class hoard their benefits instead of spending the money they get so that it trickles down to the poorer classes. In reality, a flat tax system could very well generate less revenue overall because those with the most money would be taxed less.

Should taxes be 100% fair? A flat tax system would create such an environment. By weighing the advantages and disadvantage of this type of law, we can all come together to determine if this is the right course of action to pursue.

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