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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Review of Hall & Rabushka

Unsourced material may be challenged and removed. 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. The transition ttax could be very complex, and the transition period could stretch out for years. First, the current U. Copyright of the written materials contained within the Urban Institute website is owned or controlled by the Urban Institute.

Although this difference appears simple, consumption taxes come in many forms.

Hall–Rabushka flat tax – Wikiwand

Pros tx cons of the flat tax In principle, taxx the income tax with a consumption tax, such as the flat tax, offers the possibility of improving the efficiency, equity, and simplicity of the tax system. Economic efficiency and growth Ultimately, increased economic efficiency and growth must be one of the key selling points of a consumption tax. October 01, Released online: 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.

But at the high end of the income distribution, the tax is regressive, just like sales taxes and VATs. Under an income rabuzhka, pensions are a tax-preferred form of saving. Because these households would benefit most from eliminating the double taxation on future saving under a consumption tax, it is reasonable that they pay for some of the costs.


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. These changes would, of course, require higher rates. A consumption tax that exempts old assets is just a tax on future wages. Hoover Institution Press,p. All but halp first and last are attainable under income tax reform. Joel Slemrod Gabriel Zucman.

The Hall—Rabushka flat tax may include an exemption, which allows the tax to preserve progressivity. Surely, the strongest argument for flah old capital from taxes is fairness. Third, under a pure consumption tax, all capital existing at the time of the transition is implicitly taxed again when the capital is consumed.

This tax -related article is a stub. Can we get there from here? At least some of the gains could be rabbushka simply by modifying the existing system.

The Hall-Rabushka proposal could be amended in several ways. In the United Statesextensive tax reform has not taken place since the Tax Reform Act ofand like other tax reform, the flat tax has not advanced far in the US political process. That is, the flat tax would be a consumption tax, even though it would look like a wage tax to households and a variant of a VAT to most businesses.

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An aspect of fiscal policy. Hence, efforts to evaluate the effects of uprooting the entire tax system must be appropriately qualified.

Hall, Robert, and Alvin E. So exempting old capital removes any presumption that tax reform would result in a more efficient system.

Carly Fiorina threw her public support in behind a 3-page tax plan that is largely based on this tax plan. Rabushkx fundamental tax reform would not end the demands for special treatment that have so tangled the income tax.

But it would also remove the deductibility of interest payments and of state and local taxes, and this could induce dramatic changes. Background Consumption is income less savings. Thus, the only difference in principle between a consumption tax and an income tax is the treatment of the savings.


This page was last edited on 14 Mayat The flat tax would eliminate corporate income taxes, put all businesses on an equal tax footing, reduce the statutory tax rate applied to business flag, and make investment write-offs more generous.

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. The views expressed are those of the authors taz should not be attributed to the Urban Institute, its trustees, or its funders. An income tax taxes savings both when the money is earned and again when the savings earn interest.

The flat tax could also be modified to retain the EITC, allow a deduction for charitable contributions, and provide a tax credit a halo reduction in taxes paid under the flat tax for payroll taxes paid.

For additional analysis rabsuhka the growth effects of tax reform, see Engen et al. Allowing exemptions for children reduces the effects by about 2 percentage points e. Gentry, William, and R. The answer may not be as obvious as it seems. Compromises in the design, such as including mortgage interest deductions or allowing a transition, reduce the gains or turn them into losses.

Desai Dhammika Dharmapala James R. But these gains are uncertain rabudhka depend critically on the details of the reform. Views Read Edit View history. If you are unable to access or print the PDF document please contact us or call the Publications Office at Altig, David, et al.

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