We have something similar to the flat tax you're describing in the UK as our income tax, though the tax threshold is only about $10500 and there are 10%, 22% and 40% tax rate divisions of your earnings. Like mentioned above, the differences are mostly to remove the burden from the lower-middle classes.
The problem is that lots of people don't earn much but are not below the poverty line. The classic example is of the married parent who works part time while the kids are at school, but relies on their partner to pay the big things like the mortgage. You probably don't want to tax such people very much, but when they make up a very significant proportion of your population as they do here, letting them go free would raise the tax burden uncomfortably on those just over the threshold.
Most of the earnings of part-timers and other low wage earners are covered by the threshold and 10% tax level, which (according to the government) is low enough that these people still work, but not so low that it causes the standard rate of tax to go up.
Also: Back to your post, people who qualify for aid in things like tuition won't benefit from tax exemptions that much, as they may earn below the threshold $20000. You would probably have to pay benefits out anyway for the poorest people...
(no subject)
Date: 2007-05-22 09:01 pm (UTC)We have something similar to the flat tax you're describing in the UK as our income tax, though the tax threshold is only about $10500 and there are 10%, 22% and 40% tax rate divisions of your earnings. Like mentioned above, the differences are mostly to remove the burden from the lower-middle classes.
The problem is that lots of people don't earn much but are not below the poverty line. The classic example is of the married parent who works part time while the kids are at school, but relies on their partner to pay the big things like the mortgage. You probably don't want to tax such people very much, but when they make up a very significant proportion of your population as they do here, letting them go free would raise the tax burden uncomfortably on those just over the threshold.
Most of the earnings of part-timers and other low wage earners are covered by the threshold and 10% tax level, which (according to the government) is low enough that these people still work, but not so low that it causes the standard rate of tax to go up.
Also: Back to your post, people who qualify for aid in things like tuition won't benefit from tax exemptions that much, as they may earn below the threshold $20000. You would probably have to pay benefits out anyway for the poorest people...