Your Tax Question - 041

Dear John, As the time to vote comes upon us, I hear certain political candidates platforming on their desire to initiate a Flat-Tax. I was wondering if you could explain how a Flat-Tax would benefit me as an American tax payer. Yours, Pete
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Hi Pete,

Thanks for asking about the Flat-Tax, I will try to explain it as I understand it.

The American system of taxation is based upon certain foundational concepts, and one of these concepts is the Pay-As-You-Go Concept and another is the Ability-To-Pay Concept.

If a straight Flat-Tax were enacted you would simply figure out your income at the end of the year and then pay a flat % rate as your tax. Receiving one giant bill on what you have earned in a year would be burdensome (even if that bill was just 10% of your gross income) for most people who live pay-check-to-pay-check. And because of the Ability-To-Pay Concept most people would not have the ability to pay that one giant bill at the end of the year. So these two concepts (Ability-To-Pay & Pay-As-You-Go) are to be respected when developing any basis for taxation in our country.

With that said then, a Flat-Tax system would be very beneficial to some people while being very burdensome to many other people.

* A Flat-Tax would make tax planning and preparation very easy but on the flip side of the coin It would also destroy the need to employ tax preparers, tax planners, accountants, CPA's, and the like. Yes, simplifying the system sounds good but have we considered how much of our economy depends on the system that we have? Imperfect as it is, it still is beneficial.

* And a Flat-Tax would be very beneficial to people the more wealthy they are and harder on the lower wage earners. 10% is easier to afford when you earn $100k verses $20k. It is still 10% to each but affording rent after taxes is still easier with $90k than with $18k.

In all honesty Pete, I would like the simplification of a Flat-Tax even though I would have to find other employment but I think the problems it would create for the lower wage earners and poor money mangers among us would be more harmful than good. However, what do I know, I'm just a tax guy.

My answer simply glances the depth of the discussion about Flat-Tax but I hope that it sheds a little light on it for you.

Best,
John