Fairness remains the dominant theme guiding the majority of debates on tax policy. However, challenges arise when it comes to appraising the treatment of diverse income groups, since no agreement exists on meaningful assessment of fairness. In the present system, those individuals who make the highest amount of money pay higher percentage of taxes relative to lower income brackets. The progressive tax system of credits and sliding tax rate scales is too intricate and does not give a sense of fairness. However, progressive taxation is cited as the fairest way to tax societies, in which incomes are widely spread. The institution of a flat tax system, in which all pay exactly the same rate, should replace the progressive tax system. Such a system has an inherent sense of fairness since all people pay the same percentage of their income. In a flat tax system, all people pay the same tax rate irrespective of the level of income. Moreover, a flat tax depoliticizes tax codes since there is no need to give preferences or penalties.
Progressive Tax or Flat Tax
Flat tax represents a tax on household income, in which taxes remain at uniform rate irrespective of the income level. The US utilizes a progressive tax system, in which high-income earners pay taxes at a higher rate relative to the low-income earners. The present progressive tax system manifests a significant degree of complexity, so significant that a call for tax reform attracts bipartisan support. Flat tax remains one of the most controversial tax reform agenda in the US. As a conception, the flat tax can be cited as impressive. However, as practical policy the flat tax presents some challenges, such as minimizing the tax paid by the rich, which advantages high income earners.
The notion that the rich should be forced to share their wealth with society by paying higher income taxes relative to the rest of the population is prominent in the government and public circles. Higher taxes among the rich are linked to enhanced distribution of income, which prompts tax optimization. Nevertheless, progressive tax rates set additional tax burden for the rich and may prompt the outflow of money into the offshore environment, where taxes are low. Proponents of imposing higher taxes among the rich relative to the poor indicate that American economy grows fast in those years when tax rates are high (Hyman 423). Higher taxes for the rich also accommodate lower taxes for the middle class, which potentially boosts adequate middle class purchasing power to sustain economic growth.
The notions of fairness and equity are at the center of tax policy. However, despite its populist appeal, tax fairness and equity are loosely comprehended and inconsistently applied (Keen, Kim, & Varsano 712). The principle of equal sacrifice or equality of taxation outlines that the objective of tax policy rests on sharing the costs of funding public goods equally across all individuals. However, it does not imply that tax payments of both individuals should be similar, which informs the basis of progressive taxation. Although the equality principle serves a restricted but critical part of ensuring that no person is left to share the lion’s share of the tax burden, it fails to address the issue on tax efficiency. One of the theories that rival the equity theory is the efficiency theory, which explores the overall social welfare as a computation of tax’s virtue. The theory of economic efficiency stipulates that not all taxes are qualified alike since some taxes exert higher costs on society relative to others in terms of compliance costs, efficiency costs, and administrative cost of taxation. Hence, the society should depend only on those taxes that are less costly, efficient, and competitive.
The income tax structures detail a trade-off between equity and efficiency. Efficiency can be best attained by utilization of simple lump sum taxes, which do not distort the choices that individuals make while vertical equity necessitates graduated tax schedules together with personal deductions, credits, and allowances. Taxes that are thought to be efficient are also perceived to minimize equity; however, it raises questions on whether the outlined objectives are always in conflict. Underpinning this trade-off is the assumption that a higher degree of tax progressivity minimizes income inequality. Nevertheless, high incidences of tax evasion frustrate the widely held perception of progressivity. If tax rates and tax evasion are positively connected, it is highly likely that both equity and efficiency could be minimized owing to the enhanced progressivity. Since flat tax qualifies as consumption tax, it is likely to enhance the efficiency of taxes.
The Relevance of Equal Tax in America: Equal Tax to Counter Economic Disparity
The rapid growth witnessed in the economy has rescued individuals from absolute poverty and minimized income disparities. However, not all people have benefited equally from the economic growth. Conversely, the distribution of income has inclined towards becoming highly unequal. Tax policy plays a crucial role in rendering the post-tax income distribution less unequal. Moreover, tax policy is central to increasing revenues necessary in financing public expenditures on transfers that tend to benefit low-income households, while infrastructure growth improves social equity. The issue of taxation raises fundamental questions on fairness with lingering questions on whether some sections of population in Jacksonville, Florida are getting away with reluctance to settle their fair share of the tax burden. The reason of growing inequality does not emanate from the tax system, but rather rising inequality derived from the amount that people earn prior to taxes. Indeed, changes to tax policy can influence the income only up to a certain point. As such, confronting the primary challenge of economic disparity will necessitate instituting policies that allow low-income individuals to earn more money, rather than heavily taxing one section of society (Gorodnichenko, Martinez-Vazquez, & Peter 504).
A system, in which all people pay an equivalent percentage of tax rates, guarantees fairness in distribution of tax burden. Indeed, paying equal taxes will avert the present scenario, in which wealthy people pay fewer taxes relative to the money they are making. The disproportional application of taxation plays a significant role in worsening the gap between the rich and the poor (Arnold 250). Critics would point out that such a system unnecessarily punishes the poor by shifting the tax burden to low income earners and the middle class since the percentage of tax mirrors a significant part of their usable income. However, such an observation ignores the fact that the poor will ultimately pay less if one takes into account the benefits that they receive from the society.
Minimizing the wealth gap would be practical and efficient since minimizing wealth gap renders the society fairer and boosts equality of opportunity. Redistributive tax, including progressive tax, does not curtail growth and attains the function of bridging the wealth gap. However, equality is not merely about proportion of income and the state has a role to safeguard it from being so. Paying equal tax will equally sustain economic growth and help to reduce the wealth gap. Flat rate tax on personal income tax is linked to high rates of economic growth, while progressive tax rate is linked to social equality and justice. The flat tax is advantageous since it reduces double taxation and purges the tax code that is biased against formation of capital (Miller 530). Nevertheless, the poor are likely to have less money subsequent to payment of tax since they earn less and are subjected to a punitive tax rate. Although, a homogeneous tax rate treats corporations and individuals fairly, it minimizes the revenue source derived from extra-taxing the rich at a higher rate.
People essentially pay tax in order to maximize the overall well-being of the society (utilitarian criterion). Consequently, one may ask why some people should be made to pay more if all people have equal rights before the law. The society gives people an equal chance to work hard and succeed. As such, no one should be forced to pay more just because he or she is rich. Moreover, the rich do not necessarily utilize a higher proportion of public goods to necessitate higher levels of taxes. When the government avails subsidies to low income earners, group, banks, or corporations, it amounts to conveying some special privilege to the recipients to the detriment of individuals, whose earnings are appropriated so as to settle subsidies. Hence, when the government intervenes so as to aid certain individuals and organizations to the detriment of others, it amounts to granting privileges and contravening the rights of other groups, which cannot lead to a just society. The tax regime ought to guarantee fairness to everyone without conveying privilege to some, especially because privileges destroy the idea of rights whenever integrated within a political system. A morally just taxing system is the one, which guarantees that all people pay equal taxes without any favor or privilege (Miller 529).
Since people enjoy equal protection under the law, it is reasonable that people should pay an equivalent price for those protections and rights. Tax systems that do not promote fair payment of taxes destroy the idea of objective law, which is informed by the fact that differential payment of taxes infringes on individual rights with intention of conveying privileges to special interest groups. The function of state rests on safeguarding rights, not contravening them. As such, tax rates ought to be applied equally so as not to prefer privileges on certain groups. Fairness is not necessarily incompatible with growth, but rather is necessary for economic growth. Ensuring that all people pay equal taxes can act as an incentive to the economy. Applying equal tax rate for all people brings the advantage of simplicity since it eliminates the necessity to fill out multiple tax forms, and maintains diverse records for tax deductions.