The Flat Tax
The Flat TaxTITLE: THE WRONG WAY TO SELL A NEW IDEA
Many people would like you to believe that flat tax is so named because it will flatten your finances. That at the least is the intended conclusion. By eliminating personal deductions like mortgagee interest payments, the study claims, the flat tax would reduce housing values in this country by upwards of 10 percent. The study’s methodology is shaky at best, and the jury on housing values is still o ut.
Despite the forces allied against the flat tax, tax reform has grown steadily because the current tax system is so unpopular and the alternatives promise so much. But in addition to the possibility of lower housing values, the flat tax poses several oth er serious problems too easily dismissed by its advocates. Businesses may be the flat tax’s second biggest obstacle. By reducing the cost of compliance with the tax laws and removing uncertainties about the tax situation, the flat tax would eventually benefit businesses. However, they would see their tax burde n rise by about two-thirds, on average, from 31 percent of the total tax burden to around 50 percent. This tax increase on businesses would result from the loss of deductions for state and local taxes and for employee fringe benefits, among other things.
Though businesses will try to pass on these costs to consumers and employees-by raising prices and trimming fringe benefits, for example-shifting the nations tax burden to the business community will not produce successful tax reform. Next, the flat tax initially would raise taxes on the middle class by 20 percent. On average, a family with between $40,000 and $50,000 in adjusted gross income would see there taxes rise about $700 to about $7.500.
The flat tax also appears to have a major fairness problem. For example consider two families. The Jones have a combined salary of $50,000 in wages. Under the flat tax, a 20 percent rate would cost this family $3,700. Now consider the Smiths, who in r etirement consume every...
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