Let’s continue the “flat tax” talk. One aspect of the flat tax idea is that administration will be simpler. There will be a tax rate paid by everyone without deductions. Eliminating the deductions, taxpayers, individuals and corporations, file their annual income statement and taxes are paid at a percentage of that auditable amount. Collection could just be a matter of planned quarterly deductions based on estimated taxes or actuals, if desired.
What percentage of the IRS operations could be eliminated through such simplification?
Consider this analysis by the IRS:
“Key Terms flat tax—Another term for a proportional tax. proportional tax—A tax that takes the same percentage of income from all income groups.
regressive tax—A tax that takes a larger percentage of income from low-income groups than from high-income groups.
sales tax—A tax on retail products based on a set percentage of retail cost. Summary With a proportional or flat tax, each individual or household pays the same fixed rate. For example, low-income taxpayers would pay 10 percent, middle-income taxpayers would pay 10 percent, and high-income taxpayers would pay 10 percent. The sales tax is an example of a proportional tax because all consumers, regardless of income, pay the same fixed rate.
Although individuals are taxed at the same rate, flat taxes can be considered regressive because a larger portion of income is taken from those with lower incomes. For example, a 6% sales tax on a $1000 computer ($60) would take a greater portion of a $10,000 income than of a $50,000 income.
Complete the proportional tax chart. (Picture post)
To find the amount of tax, use this formula: Income × percentage of income paid in tax = amount of tax. Example: $15,000 × .10 (10%) = $1,500.
The Armey-Shelby flat tax proposal is also based on a 17 percent rate. The Armey-Shelby tax, however, applies that rate only on income over $35,400 for a family of four. In other words, if the family made $50,000, they would be taxed on $14,600 ($50,000 − $35,400).
1. How is the attempt to exempt a certain amount from the tax a way to make the tax less regressive? Lower income groups would pay less or no taxes.
2. Using the Armey-Shelby tax exemption of $35,400, how much tax would a family of four earning $25,000 pay in taxes? nothing Activity 3 The Greens and the Smiths live in a state that has a proportional sales tax. Read the following details about each family. Then, on a separate sheet of paper, write a short essay explaining the regressive effect of this proportional sales tax on each family. The Greens, a family of four, earn $20,000 a year and spend 70 percent of their income on taxable consumer goods. The Smiths, also a family of four, earn $200,000 a year, enough to allow them to invest or save 30 percent of their income. They spend only 40 percent of their income on taxable consumer goods. Answers will vary.”
When Rick Perry recommended the flat tax, he didn’t mention that it would eliminate 1 million jobs for people preparing taxes. Well, maybe that is a good thing, and they should be repurposed.
Missing in the story is that taxes are meant to sustain ongoing operations, pay down obligations, and to set-aside for disasters. They are also used to modify peoples’ behavior.
For instance, when wealthy and intelligent people apply their abilities and assets to invent and to create new business units and jobs, they deserve the reward that is inherent in the free market whereby consumers buy their products.
When those same people rest on their assets, God-given or otherwise, they might be sanctioned for doing that. Sanctions means taking away some of their idle assets and repurposing them by investing in the national infrastructure or making loans available to those who want to start up new businesses.
When people accept public assistance that enables them to live “adequately,” they do so with an obligation to move beyond assistance and to achieve self sustainment. If they don’t they would be sanctioned by losing their freedom. Otherwise, they might be tasked to perform public work, or they might be confined to a sort of house arrest, until or unless they move forward.
Some people are disabled and cannot move beyond adequate living supported by public assistance. For them, they are assured respect and dignity.
What do you think of that?
Realize that zero deductions would take away home mortgage deductions, for instance.