Dual Rate Income Tax

What is a Dual Rate Income Tax

A dual rate income tax is an income tax rate structure in which two different tax rates are charged relying upon income levels.

BREAKING DOWN Dual Rate Income Tax

With dual rate income tax, all income will be taxed at the lower rate up to the cutoff income level, and everything income over the cutoff point is taxed at the higher rate. This is like a flat tax structure however rather than just one rate, it has two.

A dual rate income tax is in many cases proposed in combination with thoughts for working on the overall tax system by killing most tax deductions and escape clauses. For instance, an income tax system utilizing a dual rate structure might charge 20% on all income up to $100,000 and charge 25% on each dollar of taxable income above $100,000. Thusly, on the off chance that you had an income of $150,000, your tax owed would be $32,500 ($100,000 x 20% + $50,000 x 25%).

Upsides and downsides of a Dual Rate Income Tax

Advocates of the dual rate income tax contend that is both less difficult and more fair than the current federal tax code, which has seven unique tax brackets following the tax reform of 2017. Defenders of the system have contended that alongside moving from seven brackets to just two, Congress ought to take out most deductions and credits, further improving the tax code and liberating economic entertainers from spending such a lot of significant investment setting up their taxes every year. Defenders likewise say that two rates is all the more fair, as it does less to punish the individuals who need to try sincerely and earn huge amount of cash. Moreover, under most dual income tax proposals, by far most of American families would pay the lower, top notch, implying that most families would send a similar share of the their income to the federal government.

Pundits of a dual rate income tax contend that it is regressive, implying that it puts too a large part of the burden of funding the government on more unfortunate Americans who can bear to pay taxes the least. In the above model, for example, a family making $100,000 is paying similar share of their income in taxes, 20%, to the federal government as a family making $50,000. Dual-rate pundits contend that the main family can substantially more effectively manage the $20,000 it owes in taxes under this system than the $10,000 the subsequent family owes. Accordingly, this camp contends for more and higher marginal tax brackets, so to shift the burden of taxation more towards the rich.