The Pros And Cons Of A Flat Tax

The current U.S. tax program distinguishes rates by an individual 's income. This tax program is also known as the progressive tax program. The counterpart to this program is known as the flat tax program where everyone pays the same rate on income, regardless of one 's wage. This needs to change in order for everyone can be on the same income level. The Government should replace the current progressive tax on income with a simple flat tax in order to create economic fairness and to prevent tax evasion.

In particular, replacing the current progressive income tax with a flat income tax, the government would not support low income earners, but instead promote higher income. This would result in an economically fair country, by providing a common

This occurs when a person or company evades tax obligations by use of foreign banks, or through progressive tax loopholes. According to the IRS, “13.7% of all taxes that should have been paid (Slemrod 2007)” (Doerrenberg and Peichl 294). Thirteen, and a seven tenths of a percent equates to a total of about two hundred ninety billion dollars lost to tax evasion. In order for the U.S. Government to prevent tax evasion, a flat tax should be installed because a flat tax would not allow any loopholes for tax evasion to occur, unlike its counterpart. A flat tax would not have any loopholes resulting from tax deductions. One of these loopholes for a business consists of using of tax havens which result in “a decrease in debt FPI (Foreign Portfolio Investment) ranging from 0% to 32.5%”(Hanlon, Maydew, and Thornock). Due to the fact that a business’s goal is to sell a product for a profit, any business would strive to save every dollar possible. For instance, businesses can send all their money to a foreign country that does not tax as much as the current American income rate in order to save money. This affects the American economy because these America based companies no longer have to pay income tax to the U.S. Government. These corporations contribute to a “loss in revenue of about $100 billion” (Conason). Of the two hundred

Government. Supporters of the progressive tax believe that “An automatic increase of tax revenue generated by a larger tax base”(Piana). On the contrary, historical facts have shown that “the average federal tax rate for the top one percent of income earners fell by 1.1 percentage points in 1997 and a further 1.5 percentage points in 1998. Despite the cut, individual income tax revenues rose by 9.8 percent in 1997 and 10.6 percent in 1998” (Russell). Although raising tax rates would increase revenue, lowering the rate would increase revenue substantially more. This is caused from not only the nation’s richest earning more, but also the would impel the average family to earn more, which will in turn causes economic