Essay, Research Paper: Flat Tax In Canada

Flat tax
In a recent study, the Fraser Institute is quoted with saying, "A flat tax is necessary to achieve efficiency, fairness, and the simplest- measure of a successful tax policy (Fraser institute)." The Flat tax system is a comprehensive, integrated approach to taxation. Flat tax uses a uniform tax rate for income, whether personal or business. The flat tax system ensures that all sources of income are taxed once and at one rate. The introduction of a flat tax system would create fairness, drastically simplify and improve Canada's tax system. Flat tax would not destroy progression in our tax system it would only make it more fair. Flat tax is not a new idea, it is currently used in Hong Kong and the Channel Island. The issue is not with out complication. Some would suggest that Flat tax would only benefit the rich. This argument is false, simply because if people have more money to spend, they will, and that is beneficial to every one. The issue is very significant because it is important to know if there are better way for the government to operate our tax system and flat tax is defiantly one of them.
The biggest concern with flat tax is that it would eliminate progression in taxation. This is entirely false, a flat tax system is still progressive in a sense, only it is the most fair way of taxation among everyone. A flat tax rate of 20% with no deductions would earn the government the same amount of money as today's system. However progressivity is still found in a flat tax system. If a person earns 20 000 dollars a year they will pay 4000 dollars tax. If one make 100 000 dollars a year then they pay 20 000 dollars tax. This is progessivity at it's fairness, The more one makes the more they pay. This form of tax is still progressive yet it eliminates the damaging affects of increasing marginal tax rates. The most specific effect of progressive marginal taxation is its discouraging effect on entrepreneurial activities, saving and investing. Progressivity can y be further created with the introduction of personal exemptions. These exemptions allow individuals, families and businesses to earn a certain level of income before being taxed. However one must keep in mind that the larger the exemptions the larger rate that must be used in taxation in order to achieve sufficient revenue.
Simply a flat tax system is more economical than our current system. Flat tax would decrease the amounts of confusion with the current tax system. A simple 20% tax rate would eliminate masses of confusion and work in filing a tax return. With this simple form of taxation the government could cut numerous jobs in the income tax department, creating a lower overhead for the government so they could spend more money in areas such as social programs and healthcare. With such a simple tax system the government could almost eliminate the need of costly auditing and they would save millions in not having to send back millions of returns. Today, the average worker cannot even fill out a tax return, many people have to hire accountants to get assistance with there return. People would be saving even more money with a new simple tax system simply because they would be able to do taxes quickly and effectively. Some people would no longer need the help of accountants and would be able to spend that saved money elsewhere, furthering the growth of Canada's economy. A flat tax system is also more efficient in its operation than our progressive system simply because it eliminates the "loop holes" that some are lucky enough to find in Canada current system. These loop holes cost tax payers millions a year and the introduction of flat tax would eliminate these and make even more money for the government.
The biggest fear of opponents to flat tax, is that they assume that the effects of flat tax are completely theoretical. This is untrue, to say the least. For several decades several governments have operated their highly successful fiscal policies on a "flat tax" basis. Both Hong Kong and the Channel Islands have done very well by implementing a tax system based on fairness, simplicity and efficiency. The island of Hong Kong has no natural resources yet it succeeds at being the world eighth- largest trading economy. How is this possible? According to The Economist Magazine "The territory's tradition of simple and low taxes...... is widely seen as its main reason for stunning economic prosperity" (The Economist 2000). According to the Fraser Institute Hong Kong currently holds a 9.4 (out of ten) in economic freedom, which is the highest in the world because of it's flat tax system. Hong Kong currently boast a maximum of 15% tax on gross incomes, less personal exemptions. "Since 1976 further improvements have been made to Honk Kong's tax system, which on a balance has resulted in a lower burden on personal taxation, higher tax yield and hence a larger fiscal surplus, (Jao 1981)" were some of the flattering comment made about Hong Kong tax system by economist Y.C. Jao. Impressively Hong Kong's tax system have made it one of the most prosperous countries in the world. This proves that a flat tax rate would benefit Canada as well.
Canada's current tax system is in dire need of reform and what better time to try a flat tax system. A flat tax system has proved itself in Hong Kong and it's time we implement a similar system in Canada. The flat tax system still utilizes the ultimate fairness in progressive taxation. Yet the flat tax system is much more economically sensible. It would save all Canadian's money as well as the Canadian government. Flat tax is the best solution for everyone to Canada's tax problems.
Bibliography
"Significant tax reform required in Canada." Clemens and Emes. Fraser Institute, 2001. Available at: www.fraserinstitute.ca/media/mediarelease/2001
"Average taxes, marginal taxes and progressivity." Fraser Institute, 2001. available at: www.fraserinstitute.ca/publicat...1_issues/2001/flat_tax/section_05
"International Evidence." Fraser Institute, 2001. Available at: www.fraserinstitute.ca/publicatio...ca1_issues/2001/flat_tax/section_09