Background:
Over the past 30 years the concept of the flat tax has been discussed by both political parties. The issues that create dissension revolve around the definition of income. As you have seen in your studies thus far, there are many items of “income” that have been specifically excluded in the IRC. These items that have been excluded are usually the result of some special interest group that has lobbied Congress to obtain favorable treatment for its constituents.
In order to simplify taxes, these favored items must be eliminated so that everyone has the same tax rate on the same items of income. The deductions pertaining to homeownership will be eliminated. The reductions of tax for child care expenses or college tuition will be gone.
In short, §61 will become all-important: ”All income from whatever source derived.”

Resources to Review:
Open the Excel spreadsheet file entitled “Flat Tax Rates for 2011” (located in the Activities folder [inside Comprehensive Problems folder inside Assignments folder] in Angel) which is an example of the flat tax using the 2011 tax rates for several groups of taxpayers.
Of note is:
• The first column (A) indicates the GROSS INCOME for the individuals in each group.
• The second column (B) indicates the amount of income that is excluded from taxation for those individuals. (This includes itemized deductions and/or any excludable income.)
• The third column (C) indicates the taxable income.
• The fourth column (D) is the tax liability on that income.
• The fifth column (E) indicates how many taxpayers (TP) are included in that group. Note that these numbers were purposefully used so that the following occurs:
The sixth column (F) has the same total gross income of $1,250,000 for each group.
The seventh column (G) has the same total taxable income of $1,000,000 for each group.
• The final column (I) is the actual tax that would be due from each group.

Notice that although each group has $1,000,000 total taxable income, the amount due from each group is significantly different -- because of the progressive tax rate currently in effect.

The second set of calculations (Table 2) is based upon no excludable income being allowed -- after all we are simplifying the tax code so no favors allowed! You can see how the flat tax changes the amounts due from each of the different groups.

Assignment:
1. Research four different proposals that have been put forth over the past 20 years to simplify the tax code by using a flat tax.
2. Compare the different proposals and run calculations to determine how each proposal would impact the various groups of taxpayers as identified in the example file, “Flat Tax Rates for 2011”. Compare each proposal with the current progressive tax rates for each group.
3. Determine the “goodness” of each proposal and support your statements with primary sources.
4. Finally take a position concerning the flat tax v. the current progressive tax system and defend your position.

Make certain that you cite all your resources.

Background: Over the past 30 years the concept of the flat tax has...