Under a Progressive Tax Code, people who make more money are taxed at a higher rate than those who make less money. On the other hand, the flat tax code taxes everyone regardless of income level. While it is perceived that the progressive tax code generates more government revenue by collecting more from those who can afford to pay more, the same scenario is achieved with the flat tax code as well. This myth continues to elude taxpayers because there are only half-truths that people who make more money pay fewer taxes.
The half-truth that is missing is the people who make more money tend to have tax deductions that reduce their taxable income. These tax deductions are known as itemized deductions. Itemized deductions are disclosed on Schedule A (Form 10140). These deductions include medical and dental expenses such as co-pays, cost of medical insurance, mileage to doctors’ visits, prescriptions, medical equipment, etc. Other itemized deductions include state and local taxes, state and local real estate taxes, state and local property tax, additional tax, home mortgage interest and points, gifts to charity by cash or check, as well as non-cash gifts – such as clothing donations to a local charity, and other itemized deductions.
For example, suppose an individual earns $40,000 per year. In this case, the likelihood of the taxpayer reducing their taxable income with itemized deductions is slim, as the cost to maintain a mortgaged residence may be less affordable with such an income. However, the person who makes $100,000 may likely have disposable income to benefit from itemized deductions, therefore reducing their taxable income.
The Flat Tax Code eliminates itemized deductions since it imposes a flat tax rate on earned income. Consider this, using a 10% flat tax rate, $100,000 income, accessed taxes total $10,000; as such an income level of $10,000, taxes total $1,000. Therefore, the high-level income earner is taxed at the same rate, however the amount of taxes accessed are higher due to the amount of taxed earned income higher rate, so it achieves a better result than the progressive tax rate.
The flat tax rate evens the playing field for all income brackets. Warren Buffett, one of the wealthiest men in the world, once stated that he pays a lower tax rate than his secretary. Chris Isidore noted that Warren Buffett statement commenting that, “even though he and other top earners are paying higher taxes this year, he thinks he’s still paying a lower rate than his secretary.” Buffett says he’s still paying lower tax rate than his secretary. by Chris Isidore @CNNMoney March 4, 2013: 11:20 AM ET. It’s time for a change!
