How Much Money Will the Mitt Romney Tax Plan Cost You?

Posted in Tax • October 4, 2012

what is a flat tax

The political season is really heating up, and the continued mudslinging between camps means things will only get more intense as we edge closer to the polls in November. A blockbuster issue in this election is taxes — how much people should pay, how the tax code should be set up, whether the rich should keep their loopholes and deductions…the list goes on.

The flat tax is a particularly touchy subject because Mitt Romney has declared repeatedly over the years that he’s in favor of a flat tax, but Democrats point out that he’s waffled on the issue quite a bit throughout his career. But what is a flat tax? Many people fail to understand what it is and how it works.

What is a Flat Tax?

A flat tax is essentially a tax system that assigns the same tax rate to every citizen, no matter what tax bracket he or she falls in. There are no exemptions or deductions — just one rate that everyone pays as a percentage of income.

Those who support the flat tax in the U.S. maintain that it would provide an incentive for taxpayers to earn greater income since they wouldn’t be penalized for earning in a higher tax bracket. It’s also more fair in the opinion of some analysts because everyone would pay the same rate.

Currently, the U.S. employs a progressive tax rate system. This means that the less a person makes, the less percentage of their income goes to taxes. The more income a person receives, the more they must pay in taxes. As of 2011, most taxpayers earning $379,151 and up had to pay 35 percent of their income in taxes. Some consider this grossly unfair, hence the proposed flat tax.

 

2011 Tax Brackets
Tax rate Single filers Married filing jointly or qualifying widow/widower Married filing separately Head of household
10% Up to $8,500 Up to $17,000 Up to $8,500 Up to $12,150
15% $8,501 – $34,500 $17,001 – $69,000 $8,501- $34,500 $12,151 – $46,250
25% $34,501 – $83,600 $69,001 – $139,350 $34,501 – $69,675 $46,251 – $119,400
28% $83,601 – $174,400 $139,351 – $212,300 $69,676 – $106,150 $119,401 – $193,350
33% $174,401 – $379,150 $212,301 – $379,150 $106,151 – $189,575 $193,351 – $379,150
35% $379,151 or more $379,151 or more $189,576 or more $379,151 or more

Some proponents of the flat tax point to countries such as Lithuania and Estonia that have successfully moved to a flat tax system. These countries saw marked economic prosperity following the change. Others say there are too many variables in the U.S. that prevent this from being the surefire outcome of such a system.

How Would a Flat Tax Work in the U.S. Today?

what is a flat taxSome economic analysts maintain that a flat tax would stimulate economic growth for the long-haul by reducing the tax burden for rich people, since they’re the ones who save and invest the most.

Related: Wealthy Americans Relinquish U.S. Citizenship to Avoid High Taxes

The political climate today is decidedly anti-flat tax. Occupy Wall Street movements are popping up all over the country, and the general sentiment is against the wealthy keeping their dough. Other movements — both Republican and Democrat — support the anti “rich get richer” idea as well.

Some argue that lifting tax burdens from savings and investments automatically helps the rich, and the effects trickle down and stimulate the economy. Others say the rich simply get richer and everyone else loses. Regardless of your stance, the bottom line is that the U.S. is not ready for a flat tax, at least not right now.

Photo: Vectorportal

 

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