Iowa, Mississippi, and Georgia passed legislation to make the switch this year to flat income taxes. Arizona cleared the way with a recent court decision, and Oklahoma is considering joining the nine other flat tax states.
Flat Income Tax System
Every taxpayer, regardless of their income bracket, pays the same tax rate under a flat tax system. A flat tax, in most cases, applies the same tax rate to all taxpayers and allows no deductions or exemptions.
Dividends, payouts, capital gains, and other investments are not taxed in most flat tax systems. This is in contrast to a progressive tax system in which the system taxes higher-income earners at higher rates.
More States Are Flipping Their Tax System As Revenue Rises
According to the Tax Foundation, just four states have switched from progressive rates to flat taxes just in the last century. This year, 3 more states — Iowa, Mississippi, and Georgia passed legislation to implement the change. These changes come amid a wave of state-level tax cuts brought on by budget surpluses.
“States are flush with cash. They’ve seen revenues continue to rise and there is an opportunity for tax reform.” Jared Walczak, The Tax Foundation’s Vice President of state projects stated. “With the amount of revenue that policymakers are seeing right now in their forecasts, many see this as a good opportunity to adopt the flat tax reforms they may have desired for years,” he said.
Pros Of A Flat Tax System
By moving to a flat tax rate from a progressive tax rate, people would theoretically be encouraged to work more because they would be able to save more of their own money. In the best-case scenario, this would raise overall revenues, provide economic stability and attract business investments.
According to CBS News, half of all taxpayers pay a professional to prepare and file their tax returns. About 7 in 10 Americans are worried about preparing their taxes, with the most common concern being that a mistake may result in a tax audit. In 2021, filing a standard Form 1040 with no itemized deductions and a state tax return cost an average of $220, $323 for an itemized Form 1040 with Schedule A, and $903 for Form 1120S – S corporation. With a flat tax, a simple calculation would be required to reduce tax preparation costs.
If you are self-employed in the United States, you pay higher taxes than someone who is more traditionally hired. This is due to the fact that you must pay Medicare and Social Security taxes that are withheld from your paycheck. A flat tax would eliminate this penalty for anyone who is self-employed.
Cons Of A Flat Tax System
When an economy is robust and growing, the effects of a flat tax regime on the wealth are also strong. This allows households to potentially grow their incomes, pay off debt, save and spend more, and increase their spending. Moreover, the opposite is also valid. If there are fewer opportunities available, then there are fewer jobs available with this simplified system. This results in fewer people entering the labor field, reducing everyone’s income, including the government’s.
A flat tax would lower taxes for the wealthiest Americans while shifting the burden to the lower and middle classes. Not only will the flat tax system lower taxes for the rich significantly but depending on each taxpayer’s income, tax rates can range from 10% to 37%. Assuming that more commonly used deductions are eliminated, the tax burden could shift exponentially to the lower and middle classes.
Resolve Your Tax Bills
If you’ve found yourself in a nasty mess with the IRS, take a deep breath. Unpaid back taxes may be the biggest issue that taxpayers face, but the resolution may be very simple. For taxpayers who may have difficulty paying off an excessive amount of tax debt, there’s a tax relief program that consolidates many major relief programs into a one-size-fits-all assistance program; The IRS Fresh Start Program.
It’s a new and improved relief program that consolidates many major relief programs into a one-size-fits-all assistance program. Any issues regarding back taxes, unfiled years, or any other tax-related problems may be solved through one program; the IRS Fresh Start Program!
See if You Qualify for the Fresh Start Program Today!
Resolve your tax debt before the IRS surprises you with late fees and penalties!
- Answer a few questions
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