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The Flat Income Tax - Case Study Example

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The income tax in the United States has evolved from a simple system designed to generate revenue to a complex process of economic engineering and politicized monetary management. In an effort to implement the complicated maze of US tax laws, the Internal Revenue Service (IRS) has grown to become one of the largest bureaucratic institutions in the world…
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The Flat Income Tax
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The Flat Income Tax

Download file to see previous pages... In addition, all taxpayers would be given a liberal personal deduction These changes in our tax code would simplify the administration of taxation, be more fair, generate greater revenue, and stimulate the economy.
One of the biggest complaints about the current system of taxation is its overwhelming complexity. The myriad forms, schedules, and attachments required to even file the most basic income and expenditures is beyond the capability of the average taxpayer. The Internal Revenue tax code contains more than 9.4 million words, thousands of provisions for business and individuals, and an instruction booklet that is over 100 pages in length (Graetz 49). The flat rate income tax form would have only the demographic information and lines for income, personal deduction, tax rate (17 percent), and total taxes. By eliminating the tables, worksheets, and schedules, anyone could calculate their taxes in a matter of minutes. Steve Forbes, former presidential candidate and president of Forbes Inc. argues that, "The flat tax is the only way to bring back sanity and put an end to the clutter, confusion, and distortions of the current system" (58). The flat tax would not only save the taxpayer countless hours of organizing and calculating their yearly taxes, the IRS would save a significant portion of its budget by reducing the time it takes to collect, examine, and audit the returns.
The simplified system of the flat tax would also be more fair to all taxpayers. All taxpayers would pay an equal percentage of their income toward taxes, without regards to income bracket or economic class. This would eliminate the ongoing criticism of tax breaks for the wealthy and eliminate the public's distaste for the upper income people who currently pay no taxes. This debate has sparked class resentment among the voters, and Fuest, Peichl, and Schaefer contend that, "Tax simplification concerning the determination of income for tax purposes [. . .] reduces inequality and polarisation" (88). In addition to an equal tax rate, the system's fairness would also benefit from the elimination of the special provisions and loopholes that are afforded some specific industries and individuals.
Tax credits and exemptions for special interests such as oil exploration would no longer exist and would eliminate the inappropriate economic engineering that the tax laws do to the free market system. The revenue system is designed to generate revenue and not construct the economy. Loopholes are awarded to special interests and have more to do with social and political concerns than they do with raising revenue. The progressive tax system, and its high marginal tax rate, is often seen as an acceptable method for the redistribution of wealth from the upper classes to the lower classes. Not only are high marginal taxes unfair, Zolt and Bird contend that this concept is outdated and "'most analysts and policymakers had come to believe that high tax rates not only discouraged and distorted economic activity but also were largely ineffective in redistributing income and wealth" (8). Tax credits further disrupt the intentions of the free market by subsidizing activities that would otherwise be unprofitable. This may be in the form of social programs, such as a deduction for charity, or a tax incentive to develop a new technology. Either way, the flat tax would ...Download file to see next pagesRead More
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