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Understanding Tax Rates

Last Updated:2012-May-09
Principal Writer:Barry Shatzman

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American Taxpayer Relief Act

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A flat tax is more fair because it disallows several deductions

As we've shown here, a flat tax tends to increase taxes on poorer Americans and lower them for the wealthy - with all other things being equal. The argument often is made, however, that a flat tax would eliminate several deductions that are practical only to those with very high incomes.

Here's why that argument is invalid. There are two independent components to any tax policy...

1. Which income is taxed
2. How much of that income should be paid in taxes

We also showed in the above link how a "flat tax" is structurally no different than the one we currently have in place. The only difference is that a flat tax has a fewer number of levels. Regardless, that still addresses only the second component (what percentage of income should be paid).

The first component - which income is taxed - is completely independent of that. If a deduction is not good for the overwhelming majority of Americans under one tax structure, it is equally not good under any other structure.

Keep in mind the purpose of a tax policy is to determine who should pay what share of the money the governement needs to provide services. If certain deductions are preventing the wealthiest from paying a reasonable share - the people you elect to represent your interests should work to eliminate those deductions independent of any particular tax rate.

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