A Review of the Second Edition of The Flat Tax by Robert E. Hall and Alvin Rabushka (Hoover Institution Press, pages, $ paperback), and published in. Download Citation on ResearchGate | Flat tax: An overview of the hall-rabushka proposal | The concept of replacing the current U.S. income tax system with a. The Hall-Rabushka flat tax would replace the current income tax system with a consumption tax. Their system is a two-part value-added tax (VAT). All value.
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The credit would be a huge boon to lower- and middle-income households, because most now pay more in payroll taxes than in hal, taxes. The answer may not be as obvious as it seems.
Hall, Robert, and Alvin E. Copyright of the written materials contained within the Urban Institute website is owned or controlled by the Urban Institute.
Brookings Institution Press, As for simplicity, the flat tax would likely slash compliance costs for many businesses and households. However, Eastern Bloc countries have generally embraced the flat tax after the fall of the Iron Tac. First, dabushka onetime implicit tax on existing capital is very progressive. Under an income tax, pensions are a tax-preferred form of saving. Evaluating the effects of adopting a flat tax Analysts find it hard to predict with precision the effects of minor tax changes, and heated debate continues about the effects of the major s tax reforms.
MIT Press,pp. Once in place, though, they would be subject to the same compromises and pressures as the income tax is. The flat tax could also be modified to retain the EITC, allow a deduction for charitable contributions, and provide a tax credit a one-to-one reduction in taxes paid under the flat tax for rabushla taxes paid. This tax -related article is a stub.
A consumption tax taxes saving only once: Third, under a pure consumption tax, all capital existing at the time of the transition is implicitly taxed again when the capital is consumed. The estimates also show that, even for welldesigned consumption taxes, efficiency losses are possible. PDF Print this page Share: The business tax would be set equal to the highest tax rate on wage income. Hoover Institution Press, Perceptions of fairness may also be difficult to retain when, under the flat tax, some wealthy individuals and large corporations remit no taxes to the government while middle-class workers pay a combined marginal tax rate above 30 percent on the flat tax, state income tax, and payroll taxes.
Efficiency gains might arise from five sources: The distribution of such capital is more skewed toward wealthy households than is the distribution of overall wealth, which in turn is more skewed than the distribution of income. A third concern is how reform would affect different sectors of the economy. Princeton economist David Bradford has proposed an X-tax similar to Hall- Rabushka but with graduated tax rates on household wage income to raise progressivity.
This article needs additional citations for verification. But these results need to be interpreted carefully. Taax Print this page. The Hall—Rabushka flat tax may include an exemption, which allows the tax to rabush,a progressivity. But a tax system with these features might be able to retain the progressivity of the current tax system while also reaping most of the gains of the Hall-Rabushka proposal’s broader base, generally lower rates, and simplified compliance.
Gentry, William, and R. Falt we get there from here?
Hall–Rabushka flat tax
Surely, the strongest argument for exempting old capital from taxes is fairness. Even if a consumption tax is the right system for an economy starting from scratch, it may not be the right way to reform an existing system. Background Consumption is income less savings.
Articles needing additional references from November All articles needing additional references All stub articles.
Flat Tax: From The Encyclopedia of Taxation and Tax Policy
Without a significant gain in living standards, uprooting the entire tax system is probably not worth the risks, redistributions, and adjustment costs it would impose. First, the current U. Hall and Rabushka have consulted extensively in designing flat taxes. Relatively few elderly households finance much of their living expenses by other assets, and those that do tend to be very well off.
Removing the deduction for charitable contributions would reduce overall giving and could affect its composition as well: Ebel, and Jane G. Retrieved from ” https: Economic efficiency and growth Ultimately, increased economic efficiency and growth must be one of the key selling points of a consumption tax.
But at the high end of the income distribution, the tax is regressive, just like sales taxes and VATs.
Flat Tax: An Overview of the Hall-Rabushka Proposal
Gabushka you are unable to access or print the PDF document please contact us or call the Publications Office at Compromises in the design, such as including mortgage interest deductions or allowing a transition, reduce the gains or turn them into losses. The effects of a consumption tax on international economic transactions and on the financial sector are potentially far-reaching and need to be examined carefully.
The nonpartisan Urban Institute publishes studies, reports, and books rabishka timely topics worthy of public consideration.
Moreover, gall simplification gains could be made through changes in the income tax. First, a revenueneutral shift to a consumption tax would be expected to raise the after-tax rate of return on saving, while keeping total tax payments constant.
But it would also remove the deductibility of interest payments and of state and local taxes, and this could induce dramatic changes.