Can someone help me answer this question about "Flat tax"? I didn't understand it but now I have homework about it. Can I get some help please? Thanks!
1 Answer
I can only talk about the Canadian and Alberta Tax System.
But It Probably works similarly to the American one. See Below.
Explanation:
Normally to have a base exception to income tax usually about $10,000. Anybody making less than this pays no income tax.
From there to say $40,000 you pay 18% (or there abouts) above that you pay 29% (I'm not quite remembering the rates and they vary a bit year to year). You pay more money based on your income and the rate increases as your income increases. There are other tiers of rates but I've never made that much money. A flat Tax just says everyone pay 15% (pick your percentage, tax rates are higher in Canada) of their income regardless of the usual deductions.
The calculation of Income varies a bit. You can reduce your income by claiming various deductions the reduce your income so you can work at things to reduce the amount of money taxed at the higher rate. Its fairly complicated. With the modern computer programs the calculation process is faster and easier these days.
The Flat Tax limits the calculation of deductions you just have an income and pay a flat rate on it. Not as good a deal for people with lots of kids or other deductions. For someone with limited deductions they can do better with a flat tax.
The Province of Alberta has an optional flat tax system where you can calculate your taxes both ways a pick the one that works for you. Generally high Income earners do better with the flat tax.
below is a Web site that argues various forms of Flat tax in the American context.
The big pro to flat tax is that its simpler.
https://www.thebalance.com/flat-tax-pros-cons-examples-compared-to-fair-tax-3306329
