How does a Flat-Tax help increase the average wage?
Monday, February 22nd, 2010 at
1:58 pm
How does a Flat-Tax help increase the average wage?
I’m doing this report in Economics class, and can’t find this answer in my book.
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The simple answer would be that complex tax systems are costly as they require specialists or advisors for both devising (for governments) and interpreting (for firms and individuals). Suggesting that a flat tax is more efficient than a complex or two-tier tax system may have some validity and if true, the cost savings would essentially be transferred as a lower tax rate and thus a higher wage rate on average.
Devising a simple flat tax is difficult for many reasons as taxes and transfers offer tools for government to give incentives in certain economic industries or social requirements of equality or fairness.
Maybe you should think about the question rather than expecting to be find the answer either in a book or on the net?
I see no reason to believe that a flat tax will help the average real wage.
http://en.wikipedia.org/wiki/Flat_tax
A flat tax just takes more away from most people (people who earn less than the average) and takes a little less from the rich. The total taken is the same, so the average taken has to be the same, etc.
You can argue that because income for the rich includes non-wage income whereas for the poorer it is almost entirely wage income, that the nominal wages for the poor will increase so as to leave them with essentially the same real (after taxes) income. But that isn’t a real increase in wages. So if that’s the argument you want to make, then congratulations on a becoming a spin doctor for the rich.
A few argue that a flat tax will stimulate the economy more effectively,
http://www.heritage.org/research/taxes/bg1866.cfm
but there is very little reason to believe it. In fact, the article above making that claim points to this article as proof,
http://harvardmagazine.com/2003/03/efficient-taxation-of-in.html
but this article does not advocate a flat tax, just a more efficient one. It also notes that a revenue neutral flat tax would require a rate of 29%, much higher than the advocates (including the Heritage Foundation article) claim would be needed.
In fact, there is very little justification of any sort for a true flat tax - it would be terrible all around.
http://www.wordwiz72.com/flattax.html
Yes, it would simplify taxes, but there are much better ways of doing that.