Thursday, July 17, 2008

Plan Details - Flat Tax

The flat tax has been around for a while, so many people already understand it, but to avoid any confusion over what I am talking about let me reiterate. The flat tax charges a set percentage rate on income. However, most flat tax proposals only charge the flat tax rate on income above a certain amount. In my graphic below, I assume that noone would pay any tax when their income was below $20,000.

Other plans have also assumed a single deduction to account for spouses and children. I am not opposed to this and do think that something has to be done to not discriminate against married couples or singles. You may have also have noticed that my marginal tax rate is 24%. Through some research I have found flat tax plans where the marginal rate ranged from 17% to 19%. To be conservative I chose 19%. I also ratioed up the rate to account for the elimination of the corporate income tax.

If some believe that the flat tax is not progressive enough, I am also not opposed to higher marginal rates on higher levels of income, but I would prefer to keep the design as simple as possible. The major point for me of creating a flat tax is to avoid showing favoritism to anyone, and closing the door on rent seeking.

Full Disclosure: I would pay significantly more federal income tax under this plan. My wife does not receive a paycheck, I have two children and a mortgage. I currently pay very little in income taxes.

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