Flat Tax Rate
Implementing a flat rate tax would greatly improve the economy in theUnited States. A flat tax rate would increase savings, discretionaryspending, and prosperous investments largely by reducing marginal tax ratesand simplifying compliance costs. In addition, any negative impact onlower income Americans would be balanced by the increased gains inefficiency from the flat tax rate. Taken together, these arguments suggestthat a flat tax rate would be hugely beneficial to the American economy. Perhaps one of the most important steps in understanding the economicbenefits of a flat rate tax is in creating a solid working definition ofsuch a tax. Intuitively, a flat rate tax can be defined simply as a taxthat is proportionally applied on total income. For example, a 10 percentflat rate tax would be $5,000 for a person who earns $50,000. Similarlythe flat tax rate of 10 percent would be $2,000 for an individual who earnsa mere $20,000 per year. Browning & Browning (1995) note that a true flatrate income tax has two important and defining characteristics. They note,"first, the tax base is a comprehensive measure of income with nopreferential treatment given to specific sources
Currently, tax code consists of about sevenmillion words (ten times the length of the Bible). Marginal taxes can be significantly reduced in a flat tax system,given that the flat tax system rests on a comprehensive definition ofincome. Gains in efficiency that come from simplification oftaxes and a single rate tax will exceed the increased tax burden on lowerincome Americans. For example, a person who has an opportunity to earnadditional income will not be dissuaded by marginal taxes under a flat taxsystem. In WWII, income tax was applied to the majority of Americans, and theKorean conflict and postwar spending meant high government spending andcontinued tax. A true flat tax rate will reduce marginal taxes, thus improving anincentive to produce. While a flat tax systemwill ultimately reduce the demand for accountant's and lawyer's services,it will free a large numbers of Americans from time-intensive taxationissues (Browning & Browning, 1995). A flat tax system benefits theAmerican economy by increasing discretionary spending and savings, andshifting investments to more prosperous investments. For example, tax loopholes will be eliminated, the taxcollection system will be more efficient, and compliance costs will bereduced (Browning & Browning, 1995). While the definition of a flat rate tax seems simple, the actual flattaxes that have been proposed in the United States are usually modifiedforms, and as such are not "true" flat taxes. Higgins notes that about $100billion of uneconomical investments that are made for preferential taxpurposes can be allocated to more prosperous investments. This principle also applies to entrepreneurialventures, which are currently penalized for doing well, while a flat taxsystem allows entrepreneurs to keep profits beyond the flat tax rate. Ultimately, Higgins argues that a flat tax system will increasediscretionary income of individuals. Higgins notes that one of the greatest strengths of the flat tax isthat it is simple and easy.
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Acceptance Essays
