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Two types of flat tax systems have been proposed for the US: a flat sales tax and a flat income tax. The former would make purchases easier to manage, but some areas could lose revenue. The latter would create a sense of fairness, but families exempt from taxes would end up spending more. No tax deductions would be allowed, which could reduce charitable donations and negatively affect the housing market, but experts predict it would stimulate economic growth.
Two types of theoretical flat tax systems have been proposed for the United States. The first is a flat sales tax on everyday items, which contrasts with 2011 sales tax rates that vary by county and state. The second is a flat income tax under which everyone entitled to pay taxes should pay the same rate, regardless of their employment. This is in contrast to the 2011 US income taxation method, which uses things like expenses and income level, among others, to determine how much tax a user pays each year.
The upside of a flat sales tax would be that consumers would spend the same amount of money on sales tax no matter where they shop. Sales taxes can vary widely, depending on which area of the country a person shops in, and a flat rate would make the purchase both easier to manage and, in some locations, perhaps cheaper. One potential negative effect of a flat sales tax is that some counties or states could lose money if the flat tax rate is lower than their current tax rate. Many local and state governments depend on sales tax income for revenue, so this could result in lost funds for these areas.
One positive aspect of a flat income tax would be a sense of fairness for all consumers. If everyone were taxed at the same flat rate regardless of what a person does each year, there would no longer be a perceived penalty for being successful. One downside is that, under the 2011 US tax system, some families are exempt from taxes for a variety of reasons. With a fixed tax system, these families would end up spending more money on taxes than they would under the traditional system.
Another potential disadvantage of a flat income tax is that no tax deductions would be allowed. This could reduce the amount of charitable donations made by people who, under the traditional tax structure, make charitable donations to add to the amount they can deduct from income at the end of the tax year. This could also have a negative effect on the US housing market, because many taxpayers receive deductions as incentives to purchase new homes throughout the year. Conversely, experts predict that a flat tax would stimulate economic growth, which could offset the negative effects on areas such as the housing market.
Smart Asset.
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