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 estimates also show that, even for welldesigned consumption taxes, efficiency losses are possible. This article needs additional citations for verification. Because future consumption can be financed only from future wages or existing assets, a consumption tax is a tax on future wages and existing assets.
Flat Tax: An Overview of the Hall-Rabushka Proposal
All but the first and last are attainable under income tax reform. MIT Press,pp. This page was last edited on 14 Mayat Pros and cons of the flat tax In principle, replacing the income tax with a consumption tax, such as the flat tax, offers the possibility rabushkw improving the efficiency, equity, and simplicity of the tax flzt.
Under an income tax, pensions are a tax-preferred form of saving. 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. First, the current U. Therefore, other than the exemptions, the economic effects of the flat tax should be essentially the same as those of a VAT or a sales tax.
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. Third, older households tend to have more assets than younger ones, and taxing existing capital places heavier burdens on older generations.
Thus some simplification is likely with tax reform, but it is by no means a certain or lasting outcome. 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.
Proponents hlal point to two reasons why consumption taxes should spur saving.
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. Compromises in the design, such as including mortgage interest deductions or allowing a transition, reduce the gains or turn them into losses.
Certainly, not having a transition is simpler. An income tax taxes savings both when the money is earned and again when the savings earn interest. Third, under a pure consumption tax, all capital existing at foat time of the transition is implicitly taxed again when the capital is consumed.
Wealthy donors, for whom the write-off is now worth the most, tend to favor hospitals and universities; low-income donors, religious institutions. Can we get there from here? 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 rlat question.
Hall–Rabushka flat tax – Wikiwand
An aspect of fiscal policy. Surely, the strongest hsll for exempting old capital from taxes is fairness. Articles needing additional references from November All articles needing additional references All stub articles. The Hall-Rabushka flat tax In the early s, Robert Hall and Alvin Rabushka of the Hoover Institution developed a consumption tax system that fla some of the administrative advantages of a value-added tax VAT relative to a sales tax, while also partially addressing concerns that consumption taxes impose a relatively heavier tax burden on lower-income taxpayers.
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. No other income is taxable, and no other deductions are allowed. So exempting old capital removes any presumption that tax reform would result in a more efficient system. The transition rules could be very complex, and the transition period could stretch out for years.
Please help improve this dabushka by adding citations to reliable sources. The assets have already been taxed once; is it fair to tax them again? The Hall—Rabushka flat tax may include an exemption, which allows the tax to preserve progressivity. But for many, the tax system is not that complicated.
But transition rules likely to be added to a consumption tax to avoid this double taxation would reduce or eliminate the long-term effect on rabuwhka and growth, as noted above. A consumption tax that exempts old assets is just a clat on future wages. Second, pension coverage could fall. 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.
Funds placed in pensions, k plans, Keogh plans, and most individual retirement accounts IRAs are not taxed until they are withdrawn. Third, the estimates apply to a pure, well-designed rabushma tax. And fundamental tax reform would not end the demands for special treatment that have so tangled the income tax.
Most publications may be fkat free of charge from the web site and may be used and copies made for research, academic, policy or other non-commercial purposes. Relatively few elderly households finance much of dabushka living expenses by other assets, and those that do tend to be very well off.
The flat tax would eliminate corporate income taxes, put all businesses on an equal tax footing, reduce the statutory tax rate applied to business income, and make investment write-offs more generous.
Even if hall consumption tax is the right system for an economy starting from scratch, it may not be the right way to reform an existing system.
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. The return on these investments, then, is the pretax rate of return.