Gets interesting when you combine the above conversation with this other thread on here:
Understanding the Numbers of the 45% That Don't Pay Any Taxes At All
So if 45% of us are either not filing, get a refund or come up completely square with no income tax debt come April, that would mean that a large chunk of that 45% would no longer be seeing a refund, under a flat tax system.
I know that refunds are pretty notorious for being spent almost as soon as most people get them, therefore going straight back into the economy. Which is a good thing, overall. But if folks just saved that return that would likely be best for most people, but I understand that most cannot.
But that doesn't mean that we can't do taxes smarter either. You get a refund because you ended up paying too much, when deductions are factored in, come April. The government is borrowing from you, then paying you back (interest free) over the course of every year.
If there were to be a flat tax, there would almost never be a need to worry about filing taxes again. You would just pay whatever everyone else pays, by what you gross. Simple as that. It would just be a formality really to file, except for those that would have to file for investment deals, capital gains, stocks, etc.
So seems a flat tax would effect two large groups of taxpayers first and foremost : 1) those in this 45% that make money and venn diagram with paying less than whatever a flat tax would end up being (what like 10-17%, somewhere in that range. I hear 12-15% quite a bit as proposals for the flat tax rate). Then 2) people that likely make tons of money, probably off of investments, capital gains, stocks, etc. that work in different tax codes than normal payroll and income tax rates.
So the top and the bottom parts of our economy would both be changed, to have everyone in both of those groups paying considerably more, compared to their own gross income, than now. On the face of it at least. Keep in mind the folks getting refunds are still paying taxes, they just happened to get money back through deductions, which is right now our current 'economic stimulate' in practice, to my understanding.
Consider also that the middle class would probably get much tax relief. Or at least be paying roughly the same, once it's all said and done.
I think I tend to agree with the first poster. I know that's a complicated system, but no system should ever be so complicated that we fear to simplify it. If everyone just paid, say, 13.5% on all incomes made, no matter what from, that seems very reasonable to me. Right now you have a system of interpretation. What exactly constitutes a legit write-off? In my experience, truly it depends on who you ask.
That alone screams to me that we have a seriously manipulable tax code.