Ch 4 Flat Tax

http://www.canada.com/vancouversun/columnists/story.html?id=202a8923-2f74-4cd6-9e3d-13e067816ddf

In summary, a non-partisan lobby called the Canadian Taxpayers Federation is proposing adopting a flatter tax approach for Canada instead of the progressive taxation approach that Canada currently use. This new system includes taxing Canadians with taxable income up to $80,000 15% and those earning 10% more –25%. Even after switching to this approach, it will continue to maintain the progressive characteristic of taxation. For example those with higher income will still pay more. As well, $9,600 basic personal deductions in taxable income will increase to $15,000 that will help get 1.4 million people with low income off of tax roll and tax credits will be kept for RRSPs. As a result, relief will add up to $25 billion dollars by the year of 2012. This article talks about how this idea will lower income taxes for everyone, no one will pay an excessive amount in income taxes, and no one will need to bother with tax returns.


This article relates mostly to the proportional approach for taxation. Proportional means that people earning income at all levels will be taxed with the same tax rate. However, this article presents flat tax rates with a new tweak. This article presents a perfect summary on a flat tax rate and how it can be adjusted to create a more progressive nature. The progressive approach is when the high income earners pay a larger amount than those with low income. With this new approach, there are two different flat tax rates. The first one is for those earning $80,000 and below and the second is an increased rate for those who earn more than $80,000. Within the article, they mention points and which coincide with the ideas and arguments presented within the textbook. They present a good argument of how there will be less work done when filling in the income tax form, however, the equality on RRSP can be argued for.

In my opinion, the advantages of the adopting this new approach is arguable. There is a larger range of income levels than the two mentioned within the article. Those on the low end of the category of income earners below $80,000 will suffer more and those on the high end of the category can afford higher tax rates. The low income earners will bear the bigger burden with the tax rate because they need that money to buy essential items. However, the high income earners already have enough money to buy luxury items even when they have to give up 10% more. As well, RRSP is more beneficial for high income earners because they have more money to put into their retirement fund and receive a larger tax benefit, while the low income earners do not. Finally, because the gap between the rich and the poor is bigger with the high income earners earning more, and the low income earners earning the same amount for several years, this flat tax approach will only continue to widen the gap. With the income inequality increasing, adopting this flat tax rate is not a good idea and should not be done.