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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Without the personal exemptions, the flat tax would be equivalent to a VAT, but with taxes on wages remitted by households rather than business. Tax rate Flat Progressive Regressive Proportional. Copyright of the written materials contained within the Urban Institute website is owned or controlled by the Urban Institute. Consumption taxes are generally less regressive when viewed over longer periods of time because income changes from year to year, but they would raise tax burdens on lower- and middle-income households over any time frame.
Views Read Edit View history. No other income is taxable, and no other deductions are allowed.
As a result, if a flat tax were to raise as much revenue as the current one, the tax burden for the middle class would have to rise. Compromises in the design, such as including mortgage interest deductions or allowing a transition, reduce the gains or turn them into losses.
Relatively few elderly households finance much of their living expenses by other assets, and those that do tend to be very well off.
Hall–Rabushka flat tax – Wikipedia
Allowing for transition relief alone is enough to reduce the impact on growth to zero in the long run. Tax reform Tax stubs. How and when health insurance benefits and coverage rates would adjust to the elimination of tax-favored treatment of employer-provided health benefits is an open question.
MIT Press,pp. Third, under a pure hhall tax, all capital existing at the time of the vlat is implicitly taxed again when the capital is consumed. Even if a consumption tax is the right system for an economy starting from scratch, it may not be the hxll way to reform an existing system. The assets have already been taxed once; is it fair to tax them again? So exempting old capital removes any presumption that tax reform would result in a more efficient system.
Because future consumption can be financed only from future wages ha,l existing assets, a consumption tax is a tax on future wages and existing assets. A proposal for fundamental tax reform that would replace the income tax system with a consumption tax, to be collected by levying a flat-rate tax on businesses and individuals. Background Hal is income less savings. 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.
A tad element in raising growth and a major motivation for tax reform is increasing saving. Third, the estimates apply to a pure, well-designed consumption tax. Research Academic Mihir A. Second, pension coverage could fall. A consumption tax that exempts old assets is just a tax on future wages.
Proper attribution is required. Brookings Institution Press, Additional readings Aaron, Henry J.
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Although this difference appears simple, consumption taxes come in many forms. But these results need to be interpreted carefully. 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.
They could even lead to a system that is less efficient and less fair than the one we have. Although the flat tax is more progressive than a VAT, it is more regressive than rabkshka current system. About half of private savings already receive consumption tax treatment. Wealthy donors, for whom the write-off is now worth the most, tend to favor hospitals and universities; low-income donors, religious institutions. Under an income tax, pensions are a tax-preferred form of saving.
Order online at www. You can help Wikipedia by expanding it. Idealized rrabushka taxes may always look better than actual income tax systems. This tax -related article is a stub.
To the extent that workers did not resave all of their reduced pension contributions, saving would fall. 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.
But a consumption tax treats all saving equally, making it less likely that workers and employers would continue to accept the high regulatory and administrative costs of pensions.
At least some of the gains could be made simply by modifying the existing system.