Flat Tax

In: Business and Management

Submitted By dorabeebuu
Words 1417
Pages 6
Flat Tax Rate
Memo
To:
From:
Date:
Re: Benefits/burdens of implementing a “Flat Tax”
From the U.S. Federal Government to each individual taxpayer in America, everyone cares about how tax is being paid. In this memo, we will discuss the benefits and the burdens of implementing a “flat tax”.

The current U.S. tax system is complex. IRS has six federal income tax brackets ranging from 10 to 35 percent. This progressive tax system punishes the most productive members of society with a higher tax rate.

Some scholars, such as Dan Mitchell, argue that, “From an economic perspective, the flat tax and the national sales tax (or fair tax) are virtually identical. Both would junk the current system. Both would restore fairness by taxing at one low rate. Both would eliminate all forms of double taxation.”

A flat tax is a single rate that spans all income brackets of taxpayers, rather than the current “progressive” system, which taxes higher-income individuals at increased rates and includes numerous deductions and exemptions.

From the article Ramifications of a Flat Tax—Shifting the Burden to the Middle Class, the author states that, because many taxpayers believe the current tax system is not good enough, it needs to be changed. Therefore, the article introduces two flat tax systems to replace the current tax system, one is the Forbes’ Plan and another one is the Hall and Rabushka Plan. The models of these two plans are as follow:

1. Forbes Simulation Model
Tax Liability = (wages and salary - personal allowance - dependent deduction)*17% - child tax credit - earned income tax credit

Personal Allowance = $13,200 for each adult; 17,160 head of household;
Dependent Deduction = $4,000 per dependent;
Child Tax Credit = $1,000

2. Hall and Rabushka Simulation Model
Tax Liability =(wages and salary -personal allowance -dependent deduction)*19%…...

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