I think this is probably the best and most practical one-sentence tax idea I've heard.
Thanks. For those not familiar with the EIC, the idea is that instead of giving exemptions or reduced rates for the first $X of income, the government multiplies the first $X of income by some factor, and cuts everyone a check. You can make the system as progressive as you want by picking the cutoff point and the multiplier.
The problem with an exemption-based/graduated bracket approach is that it encourages people to try to hide their income, to stay in lower tax brackets. This leads to the ever more complicated shenanigans by tax lawyers and accountants. With an EIC/flat approach, this is reversed; people just want to prove their incomes up to the maximum EIC match, and beyond that, there's no need to track anything.
Another benefit is that the tax can be collected by simply charging every corporation X% of its payroll. It would be pretty easy to structure it in a way that eliminated the need for individual tax returns altogether.
In the uk, most people on salary (as opposed to self-employed)don't have to do individual tax returns. Income tax is deducted at source by the employer, and tax relief on things like pension contributions are reclamed by the pension company. You only need to do a tax return if you have other sources of income or if you are self-employed.
One advantage is that for people who are employed and don't have other sources of income, the responsibility for paying the tax is the employers, not the employee's.
The US also has income tax deducted by the employer. However, most people have some other form of income, be it bank interests, investment dividends, or a second job, and there are also countless potential deductions and credits buried in our insanely complex tax code. Also, since the tax rate is graduated, the correct tax rate can only be fully calculated after a person's total income for the year is known. Consequently, the pre-paycheck deduction is only ever a rough approximation, which everyone needs to rebalance every April.
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Thanks. For those not familiar with the EIC, the idea is that instead of giving exemptions or reduced rates for the first $X of income, the government multiplies the first $X of income by some factor, and cuts everyone a check. You can make the system as progressive as you want by picking the cutoff point and the multiplier.
The problem with an exemption-based/graduated bracket approach is that it encourages people to try to hide their income, to stay in lower tax brackets. This leads to the ever more complicated shenanigans by tax lawyers and accountants. With an EIC/flat approach, this is reversed; people just want to prove their incomes up to the maximum EIC match, and beyond that, there's no need to track anything.
Another benefit is that the tax can be collected by simply charging every corporation X% of its payroll. It would be pretty easy to structure it in a way that eliminated the need for individual tax returns altogether.
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One advantage is that for people who are employed and don't have other sources of income, the responsibility for paying the tax is the employers, not the employee's.
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Hence the appeal of the EIC/flat approach.