A Flat Tax: Would It Ensure Donald Trump and His Peers Pay Their Fair Share?
Introducing a flat tax system may seem like a straightforward solution for tax fairness. However, the intricacies and potential income inequality issues must be carefully considered. This article explores whether a flat tax system could ensure individuals in higher income brackets like Donald Trump pay their fair share.
Designing a Fair Flat Tax System
Firstly, a flat tax would need to treat all types of income equally. For instance, capital gains, dividends, and other income sources would be taxed the same way as regular income. This ensures that no individual can exploit different tax rates to reduce their tax burden.
Secondly, the system must tax individuals uniformly, including corporations. If not, corporations could shift their income to avoid taxes, denying individuals the same rate, leading to unfairness.
Additionally, deductions should not be allowed. While deductions can seem fair at first glance—such as mortgage interest being deductible—the reality is regressive. Someone in a lower tax bracket (e.g., 10%) would have the government cover a smaller proportion of their mortgage interest compared to a higher bracket (e.g., 39%). This results in a disparity that discourages those with lower incomes from claiming benefits.
Corporate vs. Individual Taxation
When it comes to corporate taxes, a flat tax could either raise or lower revenue based on the design. If businesses cannot deduct expenses, high-turnover, low-margin businesses could suffer unfairly, while low-volume, high-margin businesses would remain unaffected. On the other hand, allowing deductions could lead to excessive personalization of business expenses as non-sense expenses can be claimed as legitimate business expenses. For instance, business trips that involve family and private jets, Bentleys, and chauffeurs—all of which could be argued as business expenses.
This undue flexibility can lead to a situation where individuals who run businesses evade their tax responsibilities, leaving them with less stringent accountability.
Ensuring the Poor Pay Fairly
Even if a flat tax system could ensure that wealthy individuals like Donald Trump pay their fair share, it must also consider the impact on the poor. A 20% flat tax on all income could push the poor into poverty. For someone living at the poverty line, this means giving up essential meals or living on the streets. This certainly cannot be considered paying their fair share.
To address this issue, one might argue that the first dollar of income should be exempt from taxation. However, this would reintroduce tax brackets and the complexity of tax returns, which many argue is a step backward. A more nuanced solution involves maintaining the simplicity of the flat tax but ensuring the tax contributions of those at the poverty level are offset by providing them with regular tax credits.
A better approach is to impose a flat tax from the first dollar of income and automatically deposit the tax on poverty-level income into every taxpayer’s bank account on a weekly basis. This method preserves the simplicity of the flat tax while making it fairer for those at the lowest income levels.
Conclusion
The question of whether a flat tax system can ensure Donald Trump and his peers pay their fair share is complex. While such a system can provide a semblance of tax fairness, its practical implementation requires careful consideration of details to prevent income inequality. By designing a system that treats all income types equally, allows uniform taxation of individuals and corporations, and ensures that the poor are not unfairly burdened, a fairer tax system can be achieved.