![]() ![]() Under one variant of VAT, called a “subtraction-method VAT,” businesses deduct the cost of inputs from gross receipts and pay tax on the difference-the value added. What is the flat tax? The flat tax is a VAT, not so different from the taxes popular around the world. So I can’t comment on the specific proposal, but I can try to dispel some misconceptions about the flat tax. There are, as far as I know, no details about the rate or exemption level of the tax or whether it will allow deductions for things like charitable contributions or mortgage interest. The simplicity of a flat rate also increases the likelihood of compliance.Rick Perry is reportedly going to announce his tax reform plan, a so-called flat tax. The flat tax reduces the volume and intensity of administrative work currently required in the collection of taxes. A flat tax also would close credits, exemptions and loopholes that are often abused. If a flat tax were enacted and everyone paid the same rate, then fewer employees and departments would need to be involved in tracking the tax payment. This means that the IRS has to keep track of multiple rates, incomes and payment. Currently, our system taxes people at different rates. However, because the income of the millionaire is higher, he pays a significantly larger tax amount.Įmploying a flat tax system would be transparent (everyone pays the same rate) and reduce the need for micromanagement. Under a flat tax, Individuals are all taxed at the same rate, which means that a millionaire and a low-income person are taxed at the same percent. A flat tax, in the long-term, would boost the nation’s economic performance.Ī flat tax would introduce fairness to the tax structure. Lower taxes would allow more people to save a portion of their income. Dividends and capital gains would be considered income, which means they are taxed only once currently, people who invest pay taxes on the money that they initially invest (income) and then again on dividends that are earned. Imposing a flat tax would eliminate double taxation on investments. ![]()
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