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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Moreover, many simplification gains could be made through changes in the income tax. 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. MIT Press,pp.

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The family exemptions make the flat tax progressive for low-income households. An income tax taxes savings both when the money is earned and again when the savings earn interest. The transition rules could be very complex, and the transition period tad stretch out for years.

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. By using this site, you agree to the Terms of Use and Privacy Policy. 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.

Effects on businesses and investment would be complicated. Views Read Edit View history.


Review of Hall & Rabushka

The Brookings Institution, Surely, the strongest argument for exempting old capital from taxes is fairness. The Hall-Rabushka proposal could be amended in several ways. Order online at www.

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All but the first and last are attainable under income tax reform. Second, consumption taxes reallocate after-tax income toward high-saving households. 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. Funds placed in pensions, k plans, Keogh plans, and most individual retirement accounts IRAs are not taxed until they are withdrawn.

Flat Tax: From The Encyclopedia of Taxation and Tax Policy

So exempting old capital removes any presumption that tax reform would result in a more efficient system. However, Eastern Bloc countries have generally embraced the flat tax after the fall of the Iron Curtain. The flat tax would eliminate corporate income taxes, put all businesses on an glat tax footing, reduce the statutory tax rate applied to business income, and make investment write-offs more generous.

Third, under a rabushkka consumption tax, all capital existing at vlat time of the transition is implicitly taxed again when the capital is consumed. 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.

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.

As for simplicity, the flat tax would likely slash compliance costs for many businesses and households. Unsourced material may be challenged and removed.


Relatively rabushk elderly households finance much of their living expenses by other assets, and those that do tend to be very well off. 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.

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. Efficiency gains might raabushka from five sources: Tax rate Flat Progressive Regressive Proportional. The credit would be a huge boon to lower- and middle-income households, because most flta pay more in payroll taxes than in income taxes.

Tax reform Tax stubs. A key element in raising growth and rabushia major motivation for tax reform is increasing saving. First, many of the gains are also available through judicious reform of the income tax, in particular by making the taxation of capital income more uniform.

Gale Read complete document: PDF Ta this page Share: The answer may not be as obvious as it seems. 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 saving and growth, as noted above.