Question

Flat tax

A proposal has gone around that the US should adopt a flat tax or the fair tax. What is your view on either of these proposals.

Answer 1

Flat Tax vs Progessive tax system:

Progressive tax systems have tiered tax rates that charge higher income individuals higher percentages of their income and offer the lowest rates to those with the lowest incomes. Flat tax plans generally assign one tax rate to all taxpayers. No one pays more or less than anyone else under a flat tax system. Both of these systems may be considered "fair" in the sense that they are consistent and apply a rational approach to taxation. They differ, however, in their treatment of wealth, and each system may be called "unfair" according to who benefits or is treated differently.

Following foctors should be considered;

1. The quntum or proportion for individuals with lower income.

2. Whether the resultant tax collection to govenement is affected by evasion of tax practices as it is seen that when tax structure are rigid individual tent to go for these kinds of practices.

3. In eastern countries where the majority of the population is consists of lower income have progressive tax system. Hence it is crucial to take the situation of economy of a country into consideration.

4. The Flat tax system reduces the income for disposal in an individual's hand making him unable to spend less which might affect the economy and the standard of living to great extend.