Explanation :The concept of a flat tax rate has been discussed as an option for the US tax code for many years. It's an appealing and intriguing concept because it does away with the unfair and disproportionate progressive tax system that we have today. Under a flat system each taxpayer would pay the rate of tax on all of their income. There wouldn’t be an incremental income bracket system. It simplifies all of the current brackets down to one. Many leading economists, financiers, and political figures view this system as a fairer taxing policy than the current one. Many also believe that a flat taxing system would be easier to comply with and more equitable for taxpayers. The main argument against this system is that it disproportionately burdens the poor because they have less disposable income to pay the same rate as the rich.
In a nutshell :
- A flat tax applies the same rate to every taxpayer regardless of their income bracket, allowing for no deductions or exemptions.
- The opposite of a flat tax would be a progressive tax, whose rate would rise in proportion to a taxpayer's income.
- Fans of flat taxes note it makes filing easier, and that it incentivizes people to earn more because they won't be penalized with a higher tax bill.
- Flat tax critics argue that the system effectively penalizes lower-wage earners, making them pay a higher percentage of their income.
- U.S. payroll taxes are a type of flat tax.