Flat Rate Income Tax Cons
When politicians and ordinary citizens discuss tax policy, the subject of the flat tax often comes up. While instituting a flat tax would carry a number of potential benefits, including greatly simplifying the tax code and making record keeping easier, there are some potential disadvantages as well. Understanding those drawbacks provides a more complete picture of the flat tax debate.
Tax Cut for Rich
If a flat tax were to be implemented, every taxpayer, regardless of income, would pay the same percentage of their income to the Federal government. This is quite different from the current system of progressive taxation, where workers who earn higher incomes pay a higher percentage of their incomes that those who earn less. That means that wealthy taxpayers are likely to see a reduction in their total tax bills, while lower income taxpayers might see an increase.
Some flat tax proposals eliminate tax deductions, including mortgage interest and charitable donations altogether, and others leave some deductions in place while severely curtailing or eliminating others. Some people feel that the elimination or restriction of tax breaks and deductions could reduce charitable giving and hurt the housing market.
Lower Tax Receipts
Because the current system of taxation has been in place for so long, it is difficult to tell exactly what would happen if a flat tax were to be implemented. One possibility is that while the flat tax would in fact simplify the tax code, it would also result in lower overall tax receipts. If that were to happen, the federal government would be left with a choice between a higher rate for the flat tax or severe cuts in federal programs.
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