Memorandum TO: SYLVIA BLAIN, Tax Manager September 14, 2017 FROM: SHANICE SCOTT-THURSTON, Tax Staff Accountant SUBJECT: RESPONSE to GOVERNOR CASH’S FLAT TAX INQUIRY This memo is in response to Governor James Cash’s inquiry of adopting a flat tax system. The memo will first describe a flat tax system and then discuss the advantages and disadvantages of adopting a flat tax system. Lastly, the memo will address the recommendation of not implementing a flat tax system in Governor Cash’s state. What is a Flat Tax System? A flat tax system is a system in which the household income is taxed at a uniform rate regardless of the income level. What are the Advantages of a Flat Tax System A significant advantage of a flat tax system is simplicity. A uniform tax rate is a simple computation for taxpayers since a flat tax rate taxes only one income therefore it is easier to understand and report. Furthermore, a flat tax rate would eliminate taxpayers’ financial burden of complying with IRS current regulations which usually includes accountants, lawyers, and other resources. A flat tax system would remove a section of the tax code that is bias against capital formation. Additionally, taxpayers would only be taxed on earned income because death tax, capital gains tax and double taxation of savings and dividends would be eliminated. …show more content…
For instance, after the necessities are purchased, the lower income earners will have less disposable income, at the same rate as those earning higher income amounts. Additionally, a uniform tax system eliminates a backup revenue source, the extra revenue generated by taxing high-income earners at a higher rate for the government for which the government relies heavily on revenue generated from income taxes to support Welfare and Medicare programs.