On flat taxes
This structure strikes many conservatives as unfair. They see it as contributing to the overwhelming complexity of the tax code (which it does--consider the simplicity of paying the flat social security tax in contrast). They also complain that it punishes hard work by increasing taxes on higher-income Americans. To fix these problems, they frequently propose replacing the graduated income tax with a single, flat tax rate (frequently coupled with an exemption for some initial amount of income, as with the current tax code).
What's wrong with flat taxes? Let's look at 2001 tax information (the most recent complete information that I could readily find) to see:
In 2001, Americans with the highest 1% of incomes (that is, with incomes over $238,000 in 2001 dollars) paid an effective tax rate of 24.5% (that is, once deductions were accounted for, they paid on average 24.5% of their income in taxes). Because their incomes were very high, they paid about 30.3% of income taxes in that year.
If we were to flatten taxes, we could do it in one of two ways. We could either flatten taxes at the 24.5% they paid (which would ammount to a huge tax increase for most Americans), or, more likely, we'd flatten it below that level. If we flattened it below that level, we'd immediately reduce the government's revenue by a sizable amount (remember, this income group pays almost a third of all income taxes!) To make up the lost revenue, we'd have to either increase taxes on lower wage groups (which would hurt the economy badly--remember, it's consumer spending that's currently driving the economy, and consumer spending doesn't rise linearly with income), or go further into debt.
I simply don't see how to resolve this without a tax hike on most other Americans. (The tax rate I've seen bandied about on conservative sites is 17%, with most deductions eliminated. This would be, on average, a tax cut for people earning $80,300 or more, and a tax hike for everyone else. Remember that your average rate isn't your "bracket"--see the post below--but the amount you actually pay in taxes as a fraction of your income.)
Comments from conservatives on how this could work are certainly welcome.
Figures in this report are from Effective Federal Tax Rates, 1979-2001 by the Congressional Budget Office.
Update: The income figures in this article aren't family incomes, they're "adjusted incomes." To find yours, take your family's income and divide it by the square root of the number of people in your household. Thus, if your family income is $70,000 and there are three of you, your adjusted income is about $40,415. For a family of four to be in the highest 1% of incomes, that family must make at least $476,000.