In recent years, there have been several propositions and suggestions made as to the reformation of the federal tax system, in the aim to make it more simpler and effective. Among these propositions is the adoption of a flat tax system. The system has been met with reactions from bith sides of the argument, with the main cause of concern seeming to be it’s effects on the regular American. Flat Tax: The Effect To The Middle Class
Back in the early 1980’s, two economists from the Hoover Insitution, Robert Hall and Alvin Rabushka, developed a tax system that mirrors some of the administrative advantages of the value-added system (VAT) while addressing, in a partial way, the concerns that consumption taxes impose heavier tax-burden on lower-income people. This system, which came to be known as the Hall-Rabushka system, has been called the “flat tax” and has served as the blueprint for all the other “flat tax” proposals across the years, the latest of which was the one offered by presidential candidate Steve Forbes in 1996 (Gale, para. 1-3).
By definition, a true “flat tax” system is one in which there is one single tax rate applied on income, with no exceptions. This means that at a specific set level, everyone pays the same percentage of their income, regardless of how much they earn. The main cause of concern for the flat rate tax system is it’s effect on the middle-class people. Under the flat rate proposals, exceptions are made for people who do not make it into a certain bracket, i. e. , the low-income workers .
These people’s taxes may be reduced or altogether eliminated. Meanwhile, using the same percentage, very rich people may very well pay less taxes than on a graduated tax system. Positing that the government’s spending is not reduced, there would be a difference in deficit which has to be paid for by the middle-class, as argued by Douglas Dunn on his article “Flat Tax Fiasco” (Dunn, 2006).
In other words, in a true flat tax scenario, it is the middle-class people who are forced to take the slack from the non-taxation of the poor, and the reduced taxation of the rich.
References Dunn, D. (2006). Flat Tax Fiasco. Word Wizards Communications. Retrieved on January 16, 2007, from http://www. wordwiz72. com/flattax. html Gale, W. G. (1999). Flat Tax. Tax Policy Center. Retrieved on January 16, 2007, from http://www. taxpolicycenter. org/publications/url. cfm? ID=1000530