What are the Pros and Cons of a Flat Tax?

S. Lilley

Two types of theoretical flat tax systems have been proposed for the United States. The first is a flat sales tax on everyday items, which contrasts with 2011 sales tax rates that vary by county and state. The second is a flat income tax under which everyone eligible to pay taxes would be charged the same rate, regardless of his or her job. This is in contrast to the 2011 method of income taxation in the United States, which uses things such as expenses and income level, among others, to determine how much a user pays in taxes each year.

With a flat tax on income, no deductions would be allowed.
With a flat tax on income, no deductions would be allowed.

The positive side of a flat sales tax would be that consumers would spend the same amount of money on sales tax, regardless of where they shop. Sales taxes can fluctuate wildly, depending on the area of the country in which a person is shopping, and one flat rate would make purchasing both easier to manage and, in some locations, possibly cheaper. A potential negative effect of a flat sales tax is that some counties or states could lose money if the flat tax rate is set lower than their current sales tax rate. Many local and state governments depend on sales tax income for revenue, so this could result in lost funding for these areas.

One positive of a flat income tax would be a sense of fairness for all consumers. If everyone were being taxed at the same flat tax rate regardless of what a person makes each year, there would no longer be a perceived penalty for being successful. One downside is that, with the 2011 United States tax system, some households are exempt from taxes for a variety of reasons. With a flat tax system in place, these households would end up spending more money in taxes than they would under the traditional system.

Another potential downside to a flat tax on income is that no tax deductions would be allowed. This could cut into the amount of charitable donations made by people who, under the traditional tax structure, make charitable donations to add to the amount of money they can deduct against their income at the end of the tax year. This could also have a negative effect on the American housing market, because many taxpayers receive deductions as incentives to purchase new homes throughout the year. On the converse side, experts predict that a flat tax would stimulate economic growth, which could offset negative effects on areas such as the housing market.

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Discussion Comments


The flat tax is better because it requires the wealthy to pay a fair share. An example previously given: a $100k household pays 10 percent, equaling $10k. $30k equals $3k. The more a person makes is in proportion to the perks received. It's about time the wealthy and the poor start contributing to the cost of running our country!


@Soulfox -- At least a flat sales tax would be progressive. Those who have more money will (in theory) spend more and pay more taxes than those who don't have as much cash.

The flat income tax, on the other hand, is pretty darned regressive. Say the rate is 10 percent. Who is going to hurt more under that system? The person making $100,000 a year or the person scraping by on $30,000 a year? The answer to that one is obvious enough.


That flat sales tax sounds great until you realize how expensive that could be. I saw a proposal calling for a national sales tax as high as 27 percent. How many people want to pay that much on items? Few, I reckon, and people might not buy stuff as often and that could send the nation into a recession.

In theory, people might not reduce their spending because they will have more money if they aren't having to deal with withholding taxes as they do under the current system. But the sticker shock of a flat, national sales tax could derail that behavior in a hurry.

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