3. Simply how a flat tax would have an effect on retirement earnings would depend upon the small print.
The present model of H.R. 1040, for instance, would put “retirement distributions that are includible in gross earnings for such taxable yr” in “taxable earnings.”
The Burgess retirement distribution complete would come with funds from 403(a) or 403(b) annuity plans, IRA distributions, particular person retirement annuity distributions, 457 plan funds and governmental plan advantages.
However Burgess would permit for a deduction for employers’ contributions to retirement profit plans.
4. A flat tax may assist save individuals’s time.
“A flatter, fairer tax construction can be easy and tax returns might be completed on a single web page,” Burgess mentioned in a 2016 video deal with discussing his flat tax payments.
5. A flat tax might be nice for high-income shoppers.
A Congressional Funds Workplace evaluation created in 1992 discovered {that a} flat tax would enhance the after-tax earnings of individuals within the prime fifth by way of annual earnings by 6.8%, whereas sharply lowering the after-tax earnings of individuals within the backside two-fifths by way of earnings.
6. A flat tax may reverse the additional earnings taxes heaped on excessive earners in recent times.
Molly Sherlock, a Congressional Analysis Service analyst, discovered that, in 2018, taxpayers within the prime 1% by way of adjusted gross earnings paid 40% of federal earnings taxes.
If federal tax income stayed the identical and everybody paid taxes on the similar fee, they might pay simply 21% of all earnings taxes, she mentioned.
Her chart suggests {that a} flat tax may reduce the common tax fee they pay on all earnings to about 13%, from about 25% in 2018.
7. A flat tax may assist annuities compete more durable in opposition to life insurance coverage.
The Burgess invoice doesn’t say what would occur to life insurance coverage demise advantages. Congress appears extremely unlikely to alter these guidelines considerably.
The tax exclusion for all times insurance coverage demise advantages will price the federal authorities $16 billion this yr.
If the tax code did deal with life insurance coverage demise advantages and annuity advantages the identical manner, life insurance-based retirement planning methods may grow to be considerably much less enticing and annuity-based methods may grow to be considerably extra enticing.
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