So the first GOP presidential debate took place last night, and many of the candidates talked about a “FairTax” or a “Flat Tax”. Now it will be important to know what these two taxes are. Yes, they are two different tax codes. So let’s take a quick look at the tax code we have right now.
Progressive income tax
As the name would suggest, the tax rate increases as income increases. This system has become less popular at home but around the world is the most common tax code.
Why do people like it?
This tax increases revenue because it takes more taxes from those who make more, and it provides tax breaks for those who make less which would, in theory, help people struggling with poverty to save and move up economically.
Why don’t people like it?
People who make more pay more – in theory because many businessmen find loopholes and end up paying a lower tax rate than many middle-class Americans. According to the Tax Foundation, the top 1% of taxpayers have paid more in federal income taxes than the bottom 90% consistently since 2003.
Flat Tax
A Flat Tax is one tax rate applied to every tax bracket. In last night’s debate, Dr. Ben Carson explained that everyone would pay the same rate no matter how much they made that year.
Why do people like it?
It seems fairer because everyone is paying the same rate. It is also simpler and would cost less to have returns prepared. Some politicians have argued that it would totally eliminate the need for the IRS.
Why don’t people like it?
While it is one tax rate, it would mean that those who make millions of dollars a year would hundreds of thousands of dollars in taxes. While those who make $20,000 a year would only pay $2,000 in taxes.
Fair Tax
The Fair Tax differs from both of the aforementioned tax codes because it is not an income tax. It would replace the income and payroll taxes with a single consumption tax. It has formally been proposed as a 30% tax on purchases of new goods and services, excluding necessities due to a “prebate.”
A rebate? No … a “prebate”
A prebate is like a refund but is offered at the beginning of each month, so certain purchases are almost tax-free.
Why do people like the Fair Tax?
It would totally eliminate the payroll and income taxes so workers would be able to keep their whole paycheck. People also see it as more progressive because it is based on consumption of goods and services which can be controlled at will (except for necessities which are not exempt under the Fair Tax). Also, some products and services will always be in demand which makes it more stable than wages. All products and services – including those that are illegal – would be taxed, and retailers would send taxes directly to the Treasury – and again politicians say the IRS could be eliminated.
Why don’t people like it?
This tax code has never been tested in any country sparking fears that it is too experimental. It is also seen as too regressive because necessities are still taxed.
Progressive income tax
As the name would suggest, the tax rate increases as income increases. This system has become less popular at home but around the world is the most common tax code.
Why do people like it?
This tax increases revenue because it takes more taxes from those who make more, and it provides tax breaks for those who make less which would, in theory, help people struggling with poverty to save and move up economically.
Why don’t people like it?
People who make more pay more – in theory because many businessmen find loopholes and end up paying a lower tax rate than many middle-class Americans. According to the Tax Foundation, the top 1% of taxpayers have paid more in federal income taxes than the bottom 90% consistently since 2003.
Flat Tax
A Flat Tax is one tax rate applied to every tax bracket. In last night’s debate, Dr. Ben Carson explained that everyone would pay the same rate no matter how much they made that year.
Why do people like it?
It seems fairer because everyone is paying the same rate. It is also simpler and would cost less to have returns prepared. Some politicians have argued that it would totally eliminate the need for the IRS.
Why don’t people like it?
While it is one tax rate, it would mean that those who make millions of dollars a year would hundreds of thousands of dollars in taxes. While those who make $20,000 a year would only pay $2,000 in taxes.
Fair Tax
The Fair Tax differs from both of the aforementioned tax codes because it is not an income tax. It would replace the income and payroll taxes with a single consumption tax. It has formally been proposed as a 30% tax on purchases of new goods and services, excluding necessities due to a “prebate.”
A rebate? No … a “prebate”
A prebate is like a refund but is offered at the beginning of each month, so certain purchases are almost tax-free.
Why do people like the Fair Tax?
It would totally eliminate the payroll and income taxes so workers would be able to keep their whole paycheck. People also see it as more progressive because it is based on consumption of goods and services which can be controlled at will (except for necessities which are not exempt under the Fair Tax). Also, some products and services will always be in demand which makes it more stable than wages. All products and services – including those that are illegal – would be taxed, and retailers would send taxes directly to the Treasury – and again politicians say the IRS could be eliminated.
Why don’t people like it?
This tax code has never been tested in any country sparking fears that it is too experimental. It is also seen as too regressive because necessities are still taxed.