According to Hall, proponents of this system argue that flat tax claim a single marginal rate is fairer than stepped marginal tax rates going by the fact that every individual pays a similar proportion of taxable income (Hall & Rabushka, 1985). Critics of this system on the other hand argue that the marginal value of income declines with the amount of income which hence creates an imbalance of power with respect to financial capability. According to Parncutt it is appropriate to conclude that a true flat system is very beneficial to a country in the sense that the concept of the diminishing marginal utility of money and that a marginal dollar should be taxed differently (Parncutt, 2006-2010).
The adoption of the flat tax system would result to a decline in government spending. This is the sense that any increase in taxes would affect all taxpayers including government corporations and organizations. In the current tax system, the situation is such that government officials have the capability of wining public approval on selected groups to fund new spending. This implies that if there would be an increase in taxes for every one government spending, the government would not take chances and would have to scrutinize every program hence making the government more efficient.
“Under a pure flat tax without deductions, companies would be required to make single payment of tax covering the flat tax liabilities of their employees and the taxes owed on their business income”(Evans, 2005). A practical example of this is suppose in a given fiscal year, a company earns a gross profit of $3 million. Let’s say the company’s pays $2million as salaries to employees and the other $1million for other accruing expenses. Given that the flat rate is 15%, the company would therefore owe the IRS $900,000 calculated as
(3M + 2M + 1M) × 0.15 = 900,000
Under the current tax system, the federal government’s cost of processing tax returns is very high. However if the flat tax rate is adopted, the government's cost of processing tax returns would significantly reduce bringing a situation whereby the current tax agencies and relevant bodies could be abolished hence a massive cut on government cost in the administration of tax. In addition, deductions are seen to affect the nature of any tax system worldwide. In this view, the flat tax system is not an exemption. Deductions dramatically affect the effective "flatness" in the tax rate. Consider a situation whereby businesses were not allowed to deduct their expenses, under the current tax rate; a business would not be able to earn any money going by the fact that tax on revenues would always exceed the earnings. Therefore, an alternative of a flat tax system will go a long way in solving some of the tax issues facing the U.S. as well as have significant positive effects on the country’s efficiency in tax administration.