A flat income tax rate refers to a situation where all taxpayers are charged the same rate. This system of taxation is viewed as fair, as it would tax everyone at a single rate.
HOW A FLAT INCOME TAX WORKS
A direct tax is a tax in which the burden is directly shifted to the taxpayer and is progressive in nature. Progressive in nature means the tax liability increases as the taxpayer’s income increases. But in a flat income tax environment, no matter the taxpayer’s income, everyone needs to pay equal tax rates on their respective income. To navigate the complexities of direct taxes, especially in a progressive tax system, many individuals and businesses turn to a Tax preparation service. These professionals can help ensure that the correct tax rate is applied and that all deductions and exemptions are properly accounted for, minimizing tax liability.
PROS AND CONS OF A FLAT TAX
The sole purpose of a flat tax rate regime is to uplift the economic condition of a country. It is highly beneficial for taxpayer who earns high income. There are merits and demerits of a flat tax system. The advantages are simply enabling everyone to participate in the tax process. And as a result, it would rapidly increase the economic development of a country. A flat rate system would facilitate a clear understanding of computation tax on income, which would enhance public confidence. Moreover, it makes the tax process easy and less time-consuming. The demerit of a flat tax system includes a loss in revenue collection for the federal government. Other primary limitations will have an impact on the low-earner taxpayer, as they have to pay tax on their low income too.
FLAT TAX VS PROGRESSIVE TAX
A progressive tax system has been undertaken by many countries as it would enhance the revenue collection for the government. It is specifically designed to tax the increasing income of a taxpayer. There are many arguments regarding flat tax Vs progressive tax, but in most cases, the argument results in favor of the progressive tax system, as it offers a wide variety of potential growth for a country. The developments include tax equality, economic stability, consumer spending, and social justice. On the other hand, most of the advocates argue that a flat tax system is more beneficial than a progressive tax system. The benefits arising shall include promoting economic growth, as it will provide individuals and businessmen to invest more, flat taxes are easier to understand and as a result, it would help in reducing administration costs. The reduction of administration costs will happen because of fewer tax brackets and less need for tax planning. It will also eliminate some of the economic perversion syndicated with progressive tax systems.
CONCLUSION
The propaganda for a flat tax system is to tax every taxpayer equally. Whereas, a progressive tax system is based on the income of a taxpayer. It will increase with the increase in earnings of a taxpayer. The system of a flat tax rate will help a country reduce the possibility of tax fraud and loopholes to an acceptably low level. Progressive and flat tax systems are opposite to each other.
