The response to tax reforms during the 1980s shows that tax deductions were not the primary motivation for charitable donations. However, this tax-rate decrease was coupled with a 57.7 percent increase in total individual giving, exceeding the growth in total consumer spending by 25 percent. Decreasing the tax rate and allowing workers to keep more of their hard-earned money actually increases the amount of charitable giving. Although the flat tax eliminates the charitable deduction, it lowers tax rates and puts more money back in the pockets of taxpayers to give to charities if they so choose. Double taxation is the practice of taxing income twice.
Investors feel the effects of double taxation when they pay taxes on dividends received.
The first tax occurs when the company pays taxes on profits, and the second when investors pay taxes on the profits paid out in dividends. The flow-chart below highlights where the two taxes hit this money, and how the flat tax ends double taxation. Dividends do not escape taxation under the flat tax. The flat tax simply exempts individuals from owing income taxes on dividend income. However, corporations still face income tax on profits earned from activities paid for by individual investments.