A common complaint about the American tax system is that it is too complex. At over 75,000 pages, the U.S. Tax Code is almost impossible for any one person to read, let alone understand and act upon. Can anything be done to lessen this complexity?
The Flat Tax
Critics of the U.S. Tax Code claim that the reason our tax laws are so convoluted and complex is because there are too many categories of taxation and exemptions. Some suggest that the answer to simplifying the Tax Code is to abolish the current code and replace it with a so-called “flat tax.” A flat tax is defined as a tax code with one universal tax rate that applies to all citizens, regardless of income, and which contains no exemptions or other deductions for special categories of taxation.
The Progressive Tax
The flat tax stands in contrast to the current graduated income tax, sometimes called “progressive taxation.” The current Federal Income Tax is progressive, meaning that people are taxed at progressively higher rates, with rate of taxation increasing the higher the income. Progressive taxation also includes special exemptions, deductions and tax brackets that vary according to income, occupation and the desire to achieve wider societal goals, such as reducing income inequality.
Positive Features of the Flat Tax
The most appealing feature of the flat tax is its simplicity. Regardless of income, everyone would know exactly what percentage of their income they would have to pay to the government. That would eliminate the time consuming and expensive trouble that people, corporations and other financial entities have to invest in order to figure out their taxes each year. In theory, under a flat tax your taxes could be completed and filed in only a couple of minutes, freeing all that energy currently needed for tax filing for more productive purposes.
Negative Features of the Flat Tax
Critics argue that instead of being more fair, a flat tax is actually more advantageous to the wealthier members of society. That’s because poor people have much less money left over after paying their taxes than wealthier people do. They claim this makes the flat tax more of a burden on lower income people than the rich. Critics also argue that a progressive tax rate can focus tax rates on those most able to pay, while also targeting tax relief to encourage positive activities such as donating to charity.
Future of the Flat Tax
Despite being repeatedly proposed for over three decades, the flat tax has never attained much political traction. This failure persists despite bipartisan agreement that the current tax system is in serious need of reform. What seems more likely is that instead of an a totally flat tax, the current system will eventually be partially “flattened” to eliminate some of the worst complexity, while retaining some minor variations in rates and deductions. Hopefully, such a compromise would allow Americans to enjoy the best features of both the flat tax and the current progressive system.