Are we ever going to see a flat tax rate? | The Compost Bin | Forums

A flat tax on the surface, and in theory sounds like a great, and fair policy suggestion. When you look deeper into it though, it becomes clear that it is less efficient than a progressive taxation system, and does not address several issues in the economy and society.

First, publications such as Forbes that advocate for a flat tax, greatly underestimate the tax rate that would be needed to meet government operating costs. Forbes often suggests a 17% flat tax rate, but this rate will severely under-fund the government and the year would end in deficit. In reality the rate would have to be much higher.

Even if it is 17% - and assume that it covers government budget - it results in steep tax hike for everyone except for the top 9%. The most recent numbers show that the average effective tax rate is 17.1%,with the highest quintile paying 23%, the fourth 15%, third 11%,fourth 8%, and fifth 1%.

What the result of putting everyone to 17% is; is a redistribution of the tax burden from the wealthy to the middle class and poor. 17% of a $30k household income is much more of a burden than 17% of a $347k income.

The next item to keep in mind is that with a flat tax there are no write offs, no tax incentives. The government uses tax policy as a huge fiscal policy tool. Deductions not only limit peoples tax burdens, they are also used to add incentive for certain behaviors, such as saving (tax free investment vehicles like Roth IRA), purchasing behaviors (first time home buyer credits, and tax holidays), and also as a welfare tool and labor force participation incentive (EITC).

These are huge reasons to not be in favor of a flat tax, and I think that because of these very reasons we will never see one. I do agree that the tax code needs to be simplified, I also think that by lessening the tax burdens you can also force the government into more frugal spending.

I think it would be a great loss to not have taxes as a fiscal and monetary tool, and in the case of the EITC, tax policy has been our most effective form of welfare.

I understand that the argument is mostly ideological. While I do not subscribe to a lot of Classical, even Neo-Classical economics - specifically free market theories - I do see why there is an ideological argument for why a flat tax may be more fair.

Just simply outlining the debate against a flat tax form an economic and policy efficiency view.

That is true, it is a partnership of the Urban Institute and Brookings. While if I posted an opinion piece as source data there should be some consideration that there MAY be a noticeable bias in the numbers, but I simply used average effective tax rate data supplied by the IRS so i see no issue with their figures.

Do you see something on the table and in the data that is inaccurate?