Flat Tax - tendency of Aug 15

Flat Tax

Information about Flat Tax

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For example, let the flat rate be 20%, and let the deductions be $20,000 per adult and $7,000 per dependent. Under such a system, a family of four making $54,000 a year would owe no tax. A family of four making $74,000 a year would owe tax amounting to 0. 20 × (74,000 − 54,000) = $4,000, as would be the case under a flat tax system with deductions. Families of four earning less than $54,000 per year, however, would experience a "negative" amount of tax (that is, the family would receive money from the government instead of paying to the government). For example, if the family earned $34,000 a year, it would receive a check for $4,000. The NIT is intended to replace not just the USA's income tax, but also many benefits low income American households receive, such as food stamps and Medicaid. The NIT is designed to avoid the welfare trap—effective high marginal tax rates arising from the rules reducing benefits as market income rises. An objection to the NIT is that it is welfare without a work requirement. Those who would owe negative tax would be receiving a form of welfare without having to make an effort to obtain employment. Another objection is that the NIT subsidizes industries employing low-cost labor, but this objection can also be made against current systems of benefits for the working poor.