$3,700. Now consider the Smiths, who in retirement consume every dollar of their $1 million in dividend income. Under the flat tax, the Smiths owe no tax at all because capital income is excluded from the tax base. Their dividend income was taxed already at the business level before they received it, so they owe no taxes on it. But the perception would persist that a high-income family would pay no tax. Will tax fairness be defined so that individuals consuming significant amounts of capital income would pay little or no tax? The historical evidence is conclusive; when taxes were cut in the 1980s, the effects hoped for by proponents did not materialize. Instead, deficits soared. Now, when the budget is finally balanced, is not the time to jeopardize the progress that has been made. ConclusionAt first glance the flat tax proposal looks very intriguing. The proposal talks about how every income level would be treated the same by setting a standard 17 percent income tax. However, the flat tax does not treat everyone equally. This tax clearly favors the wealthy, since most of their earnings are not working wages, which would be taxed but they are inheritances or dividends. The flat tax also helps out the low-income families by making them pay very little in taxes because of the personal exemptions. Then there is the middle-class that suffers from this tax. Their taxes would not be lowered if anything they would be raised. A tax reform is very much needed to replace the complexity of the current tax system, but it should be one that does treat everyone equal and built on the aspects of our current tax system that are fair and reform the areas that need change. There is no tax system that is perfect and no tax reform proposal that is without flaws. The flat tax may work if the flaws were worked out and the tax did treat everyone equal, but until then the current tax system seems to be a better choice. ...
