ACC $261$ Online $-$ Discussion Problem $2$

Every year during the tax filing season, people complain about how complex the tax system has become. Assume

that Congress is considering passing legislation to do away with the current tax system and impose a $18\%$ flat tax

on all income. This means there is no longer tax free provisions such as the gain exclusion on the sale of your

home, social security income, tax$-$exempt interest, life insurance proceeds, and child support. This also means

that there are no special loopholes, no longer an Alternative Minimum Tax $($see Ch$.13),$ no filing status

distinctions, no tax credits, and no graduated tax rates.

What would be your tax liability under the current system?

What would be the effective tax rate under the current system?

What would be your tax liability under this new $18\%$ flat tax system?

Would you vote in favor of this flat tax system? Explain your position.

Would the government have a budget surplus or deficit under this new system with respect to these two

taxpayers $($assume all other factors remain constant$)?$ Is this system fair?

Students whose last name begins with A $-$ L: You must take the point of view of an unmarried taxpayer with

two dependent children, gross wages of $$68,000($plus $5,000$ of child support$).$ Be sure to consider standard

deduction and tax credits under the current system.