Question

Describe the characteristics of a flat tax system, including at least one positive and one negative consequence of a flat tax system. Do you agree or disagree with a flat tax system? Why or why not?

Answer 1

Flat tax rate system is system in which there's single rate of direct tax imposes on all individuals or all individuals pay same/equal portion of their income as direct tax.

Some important characteristics of flat rate system are as follows:

? there's constant marginal rate in this system, i.e. additional tax on increase in income will be of same rate as it was before.

? individuals with different level of income, pays tax from equal rate.

? this system discourages double taxation, as tax is levied on earned income only.

? it simplify the tax system and tax computation, as now individuals has to pay tax flat rate of tax.

? deductions and investments are not included while computing taxable income.

? Encourages individuals to make High earnings, because tax burden doesn't rise with increase in income.

? implying this system, in place of progressive rate system (different rate of tax for different level of income) increases the tax burden on poor and reduces the burden on rich.

As per my opinion, though flat rate system has positive consequences, such as simplifying the tax system, removing double taxation, encourages people to work hard to earn more, but it won't be a good idea for a country to implement this system, especially for doveloping countries, because flat rate tax system shift the tax burden from rich to poor, because people who are earning more money has more capacity to pay taxes, and people who are making very small earnings, can hardly buy their necessities, hence this tax system encourages inequality in economy. Flat tax rate system contribute less to government budget comparison to progressive tax system, because less taxes are paid by wealthy.

Dear student,
Last part of your question is opinion based, i answered you with my personal opinion, you can change it with your judgement capability, if you don't agree with my view.

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