Is a Progressive Tax More Fair Than a Flat Tax?

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Is a Progressive Tax More Fair Than a Flat Tax?

The dispute over progressive vs flat taxes is continuing, with both sides having supporters and detractors. The progressive tax has long been a favorite in the United States. Progressive tax systems use tiered tax rates, with higher income persons paying a bigger proportion of their income and lower income individuals paying the lowest rates. Flat tax schemes typically apply a single tax rate to all taxpayers. Under a flat tax system, no one pays more or less than everyone else. Both of these systems are “fair” in the sense that they are consistent and use a logical approach to taxing. They vary in how they handle wealth, and each system may be labeled “unfair” depending on who benefits or is treated differently.

Supporters of the progressive system argue that increased wages allow wealthy individuals to pay greater taxes, and that this is the most equitable system since it reduces the tax load on the poor. This approach helps the poor to retain more of their money since they have the lowest discretionary incomes and spend a larger percentage of their money on fundamental survival requirements such as housing. Affluent taxpayers are better equipped to meet their bodily requirements and are so taxed more. A flat tax would disregard income disparities between affluent and poor taxpayers. Because of this, some believe that flat taxes are unjust. However, progressive taxation treat the affluent and poor differently, which is also unjust.

The flat tax has a single tax rate. Everyone bears the same load, and no one is burdened unequally, wealthy or poor. Taxes do not deter wealthy earners from earning more, because a low tax rate stimulates the poor to work more. This decreases the possibility for taxes deadweight loss and promotes strong work ethics. However, this method runs the danger of taking too much money away from the poorest residents.

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Both tax regimes have major benefits and drawbacks that may prevent them from being perfectly equitable.

Advisor Insight

Ronald Mesler, JDWe Protect Doctors LLC, Boise, Idaho

This might be more of a social or political issue than a financial one. The main problem you bring up is one of “fairness.” The basic idea behind a progressive tax is straightforward: the more you make, the more taxes you pay, with the tax rate rising progressively as your income rises. However, as the phrase goes, “the devil is in the details”—at least in the specifics of the United States tax law, which has become so bloated and convoluted that it has lost its simplicity. This seems to be one of the main reasons for the popularity of a simple flat tax system: The progressive paradigm may be more equitable in principle, but the true fairness, or lack thereof, is determined by how the system is executed. Of course, there’s always the worry that if a flat tax is implemented, it won’t stay simple for long.

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