Why can't we just do a Flat Tax?

Because it's not that simple.

First of all, there's no way that we would ALL pay less. If we're still funding the same programs, then we'd need to collect a similar amount of revenue.

Second, how do you define gross income? What if you own a company that makes computers - you buy $800 dollars worth of parts, assemble them, and sell the system for $1200? Are you going to make that person pay tax on $1200? If so, then you've just KILLED any remaining manufacturing in the US.

The idea sounds nice on paper, but in the end it's the greener grass on the other side of the fence.

Because taxes would be less as an amount in total. Also do you think that a poor person can afford 25% of the income taken. And if we all pay 10% the government wouldn't have enough money to function.

The first problem with a flat tax has to do with rates and revenue. It will not raise as much revenue as the current income tax. Some critics claim that this type of proposal will cut federal revenue by over $100 billion a year. Right now, for a family of four the base exemption is about $16,000. Above that amount, income is taxed at a rate of 15 percent, rising to to 36 percent for higher earners. If there is a high-base exemption, rescuing the average Joe from income tax, then that single flat rate would have to be a lot higher than 15 percent to raise enough revenue to finance the federal government.

A flat tax makes a false claim of greater simplicity. For most people who work for wages, pay by withholding, and fill out 1040A or 1040EZ the income tax is already simple. It's complicated for self-employed people because they have to keep track of their business expenses, but that won't change under a flat tax. It's complicated for higher income people, some of whom derive income from investments as well as work, because they want to take advantage of all the loopholes written into the law that ensure that they pay considerably less in taxes than the rate schedule might suggest. When legislation actually comes to the floor of Congress, special interests are going to try to get the lower flat rate without sacrificing their tax preferences that they worked so hard to get enacted in the first place.

The claim of greater fairness also rings hollow. Most observers who have studied the flat tax have concluded that it would result in a tax windfall for the very wealthy, with the tax burden shifted to the middle and lower income groups. The income tax as presently constituted has an important and useful role to play in the overall tax structure. It's at least somewhat progressive, taking a higher share of income from higher income households.

That quality helps to offset the unfairness of sales and excise taxes, mainstays of state and local governments. The jury is still out on exactly how the burden of property tax is distributed, but a case can be made that it falls more heavily on the lower to middle income groups. Social security taxes fall on wages, not on other income, and income in excess of $60,000 is exempt. So, these other taxes are all somewhat regressive, meaning the burden falls most heavily on the less well-to-do. The income tax in its present form plays an important balancing role in the tax system that would be lost under a flat tax.

Actually, we've been moving a bit in the direction of the flat tax for quite a while now. Rates are lower and fewer than they used to be. The personal exemption and the standard deduction have been increased. The itemized deductions have been chipped away at over the years. First to go was deduction for the gasoline tax. Then the state sales tax. Then interest on most loans, except for mortgages. Then Congress increased the amount of medical expenses and employee business expenses that must be incurred before deductions can be taken. So the average family has lost a good share of its itemized deductions, a piece at a time, while a higher standard deduction encouraged many taxpayers to give up itemizing. A basic principle in economics concerns increasing marginal cost or diminishing marginal benefit. In plain language, that principle means that a good thing doesn't get better by pushing it to its logical extreme. Logical extreme is what a flat tax would be after years of lowering tax rates and constricting brackets.

Americans have seen some important changes in the income tax over the last 30 years, beginning with the 1964 Kennedy tax cut. These changes have moved toward a larger base exemption, fewer and lower rates, and simpler tax filing for the great majority. The system can still stand some further tinkering and refinement, but a flat tax is an idea that needs to be sent back to the drawing boards.

At this point the flat tax is out. The complexities would overwhelm our system, and frankly the flat tax is not fair and has a list of unsolvable problems. I would say Fair Tax (key word: fairtax) is definitely the way to go. But many equate fair tax to flat tax, which is not the same and probably one of the main reasons our politicians won't cozy up it. Fact is; those that bother to research the Fair Tax generally like it:)

So how would a flat tax work for sole proprietorships? Or any business? You need to allow them expenses and thus need rules as to what are legitimate expenses and the IRS to audit them.

What about the sale of stock and bonds? Shouldn't you allow cost basis?

Income is more than what shows up on employee's W-2's.

Yes that would be great, but if your used to getting money back, forget about that! Most low income don't pay a thing. and get back most of what was taken. The Government just makes interest off of what they hold out of your pay check.

So if a person is making 25k per year, we should take 20% of their income? The Flat Tax is a horrible idea.

I 100% agree with you! I don't see how it's fair for a wealthy person to pay 50% of his income in taxes when the lower tax brackets pay a much lower percentage.

If we implemented such a flat tax, where everyone pays the same percentage and everyone pays less than they did before; the deficit would sky-rocket.

Because that would take the power away from the Government to buy off voters with things like Clash for Clunkers or rebates for buying a new home.