Does a flat tax (with reasonable deductions) hurt anyone besides the super rich? It seems like it would solve a lot of problems and close a lot of tax loopholes. Imagine if we could nearly eliminate the IRS.
1. If you accept current economic theory, a flat tax actually hurts poor people more because it's regressive. It's regressive because each percentage point of tax means more to the poor person than it does to the rich. 15% of 1M is a lot of money compared to 15% of 30K, but the 30K earner feels that a lot more.
2. The IRS would not be eliminated. There would probably still be a federal entity responsible for managing the tax income at the federal level
3. The IRS would not be eliminated. There are a lot more taxes besides personal income taxes.
4. We basically already have most of what you're really thinking about with adopting a flat tax. The majority of tax information is already given to the IRS by your employer, bankers, etc. Most people don't really need to file a tax return, since they are just writing down numbers they got from forms which the IRS also gets copies of. Eliminating the personal income tax return in these situations has been discussed, but Intuit and some bright lights on the right/republican side of the aisle believe its a terrible idea and are fighting against it.
5. Does this response really have anything to do with people renouncing citizenship to avoid taxes on foreign income? Would replacing a rule heavy progressive taxation system with a simple flat tax really change someone's opinion on having to pay it?
> If you accept current economic theory, a flat tax actually hurts poor people more because it's regressive.
A flat tax is not "regressive" by either of the usual definitions (by the standard definition, a "regressive" tax takes a either a higher total percentage or a higher marginal percentage at lower incomes.)
It still hurts poor people compared to a progressive tax system, because it isn't progressive, so the burden on the poor, at any given total revenue level, is greater than in a progressive system.
> It's regressive because each percentage point of tax means more to the poor person than it does to the rich. 15% of 1M is a lot of money compared to 15% of 30K, but the 30K earner feels that a lot more.
While this decreasing-marginal-utility based argument for why flat taxes are bad for poor people is both consistent in outline with the current theory and well supported by empirical research on the marginal utility of income, calling this "regressive" is inconsistent with the usual definition of "regressive" when it comes to taxation.
A few of my friends are heavily left-leaning, and anytime the topic of flat taxation or 'the fair tax' comes up they start foaming at the mouth about how it's regressive. The two concepts are paired in my mind.
Why would it hurt the super rich? They can afford to find loopholes.