We are expected to spend roughly $3.5 trillion this FY and take in around $3.0 trillion in tax revenue.
(I am aware of the many assumptions and projections involved so this may be more suited to Great Debates).
Not sure of the answer, but keep in mind that most version of the “flat tax” also assume a certain personal deduction. That is, you pay X% of tax on any income above Y. You want to solve for X, but that depends on Y. To simplify the calculation, I guess you could assume Y = 0. Is that what you are asking?
Just to clarify, are you asking about the flat percentage tax of income needed to replace the current income tax and produce enough revenue to support current spending? If so, that may seem obvious to you but it isn’t because there are a number of different flat tax proposals that have been proposed. Some of them have an exemption at the lower levels of income (e.g.; nobody gets taxed anything on their first $20,000 of income) and others still have other deductions albeit more limited than the current tax system.
The purest flat tax is just a flat dollar amount that everyone has to pay no matter what their circumstances. That is obviously unworkable but it serves as a starting point to show where the weaknesses in any of the proposed plans are.
You also can’t just look at income taxes. That is only one type of revenue. You also have to look at short and long-term capital gains taxes as well as corporate taxes to build a full answer. That is probably more complicated than you anticipated but that is really what is required to get the full answer because the different tax structures we have in place now are not independent (people and corporations move money around to give themselves the best tax advantages and rightfully so). You can’t change one piece without looking at the effects on the system as a whole.
In short, you have to define your question better to get a good answer and I think that answer is going to require inventing a whole new tax plan. I am personally in favor of it in general over what we have now but it isn’t as simple as many people assume.
And if you have a pure flat tax to replace your income tax; the whole tax system is regressive–the poor pay a higher percentage–because Social Security is regressive, sales taxes are regressive, alcohol/cigarette/gas taxes are regressive.
Total Personal Income13.4 trillion in 2012.
3.5 trillion over 13.4 requires a flat tax rate of 26.11 per cent if there are no deductions or other revenue sources to balance the budget. By comparison most US individual tax payers have an effective tax rate of below 20%
This assumes (a) a flat tax on personal income only, and (b) no other taxes or revenues of any kind - i.e. no tax on corporate incomes. And am I right in thinking that “personal income” does not include capital gains accruing to individuals, so no tax on capital gains?
Wouldn’t a really flat tax tax all transactions in the economy at the same rate, regardless of whether the transaction parties were individuals, corporations or some combination of the two, and regardless of the nature of the transaction. So shouldn’t you be working off GDP rather than total personal income?
Direct answer to thread title - proposed by a Democrat.
The question is - why would capital gains be exempt? Anything you take home to spend on luxuries like food and house heating and hired limousines should be taxable. Of course the same would apply to inheritances. It appears in your pocket, you pay tax.
Exemptions? It’s like the old joke attributed to GB Shaw talking to a society lady
So do you want a flat tax or a sort of flat tax? Is the goal that everyone pays a share or that the rich pay more? How many loopholes? You are immediately making something fairer or less fair, depending on who gets a break and who picks up more of the slack. House resale? Family farm? Family business? Inheritance up to $1M?
Let’s consider the $20,000 initial earnings exemption, the easiest to back-of-the-envelope.
13.4 trillion earnings. (May not include capital gains, inheritances, so low?)
3.5 trillion government spending
Let’s say there are around 50% of population working and earning $20,000 or more. (subtracting elderly, children, students, poor, etc.) 150 million people times $20,000 is $3 trillion.
Subtract that from total earnings- taxable earnings is 10.4 trillion.
3.5/10.64 = 33.7%
Of course, as others point out, there’s corporate taxes, sales taxes, etc.
So you remove corporate taxes, except on money flowing out or country. Typically dividends have some tax credit applied because that money has already been taxed as corporate profits IIRC. Either tax it as personal income, not corporate tax, or as corporate tax and dividends are not taxable or tax it twice (or be like a congressman, tax it neither way).
You see how the system becomes convoluted and complicated. Add to that the temptation to use the system for incentives too, and things get worse.