By Alvin Rabushka

A tax shape the scale of a postcard? that may be one results of Robert E. corridor and Alvin Rabushka's flat tax suggestion. this concept, first prompt by means of the authors in 1982, is now the topic of known dialogue in either well known and educational circles. during this updated quantity, the authors argue flat tax of nineteen percentage might elevate an identical profit because the current source of revenue tax, whereas essentially remodeling our procedure of taxation to inspire mark downs and funding. Dick Armey urges passage of laws to institute a flat tax, which, he believes, might simplify taxpayers' lives and inspire fiscal progress. Robert Eisner disagrees with the Hall-Rabushka flat tax, hard claims for elevated equity and potency. He bargains, as an alternative, an alternate flat tax concept of his personal. in accordance with Herbert Stein, the current federal source of revenue tax is stuffed with "anomalies, distortions, and complexity, " taking into account "plenty of room for tax reform, " yet for inevitably of the flat tax sort. those specialists current a full of life dialogue of the professionals and cons of the proposals for a flat tax, imagine in the course of the most likely results of any such radical swap, and clarify what can look a complicated array of proof and figures.

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87 percent. SOURCE: Internal Revenue Service, Statistics of Income. 389 billion (table 3–9). 05 billion we have noted above. 23 billion, as seen in table 3–10. The wage tax in itself will generally tax most taxpayers less than they pay currently in individual income taxes, which include large amounts of noncorporate business taxes, as well as taxes on capital income. 2 Armeyb a. At 19 percent. b. 87 percent. SOURCE: Internal Revenue Service, Statistics of Income. to total income of various of its components.

The two most important trade-offs are: • Progressivity versus tax rate. A higher personal allow26 HALL AND RABUSHKA ance would put an even lower burden on low- and middleincome families. But it would require a higher tax rate. • Investment incentives versus tax rate. If the business tax had less than full write-off for purchases of capital goods, the tax rate could be lower. Here are some alternative combinations of allowances and tax rates that would all raise the same amount of revenue: Allowance for Family of Four Tax Rate $12,500 $22,500 $34,500 15% 19% 23% The choice among these alternatives depends on beliefs about how the burden of taxes should be distributed and on the degree of inefficiency that will be brought into the economy by the corresponding tax rates.

The most important structural bias of the existing system is the double taxation of business income earned in corporations and paid out to shareholders. Double taxation dramatically reduces the incentive to create new businesses in risky lines where debt financing is not available. On the other side, the existing system places no current tax on investments that can be financed by debt, where the debt is held by pension funds or other nontaxed entities. The result is a huge twist in incentives, away from entrepreneurial activities and toward safe, debt-financed activities.

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