What are the Pros and Cons of a Flat Tax?

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.

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.