No. of Recommendations: 6
<<<So if a flat tax is imposed, then pretty much all of our financial planning is for nought? Tax deferred and regular investments will pretty much be the same thing, and all those people who have paid taxes throughout their lives, saved up in IRAs, would suddenly find that in retirement that they their consumption taxes on everything own would quadruple from their expected retirement sales tax rates.>>>

You seem to be confusing a flat tax with a consumption tax. A flat tax is an income tax with a single rate for everyone. 17% has been mentioned. Supposedly everyone would receive a large enough personal exemption or std. deduction so that low income taxpayers would not pay more. High income taxpayers would get a break. The picture for middel class taxpayers is a little fuzzy.

A consumption tax, similar to your state sales tax, would have exactly the problem you've cited. People who saved diligently throughout their lives, often with after-tax money on which they paid high marginal income taxes, would be taxed a second time. Another problem is how to deal with the poor, who would be hit with huge new taxes on everything they buy. One proposal has the government sending everyone a check every month to offset the consumption tax on basic expenditures. Now doesn't that sound like an opportunity to create a wonderful new buracurcy? Or at least a place for unemployed IRS employees to go.

The biggest problem for most taxpayers with any of these tax proposals comes from two facts. (1) The president has said he will not raise taxes on the highest income taxpayers. (2) Congress has shown a total inability to reduce spending and has even refused to renew the pay-as-you-go budget constraints which helped balance the budget in the 90's. So the only way we get the revenue-neutral tax changes the president has promised is to raise taxes on the middle class. Maybe that's one reason no one is rushing to fix the AMT. If they do nothing, the AMT will automatically raise middle class taxes.

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