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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Hall–Rabushka flat tax

Proponents typically point to two reasons why consumption taxes should spur saving. But those older households have received transfers through Social Security and Medicare that far outreach what they have put in.

An income tax taxes savings both when the money is earned and again when the savings earn interest. Most publications may be downloaded free of charge from the web site and may be used and copies made for research, academic, policy or other non-commercial rbaushka. A key element in raising growth and a major motivation for tax reform is increasing saving.

This tax -related article is a stub. Certainly, not having a transition is simpler.

Flat Tax: From The Encyclopedia of Taxation and Tax Policy

If you are unable to access or print the PDF document please contact us or call the Publications Office at To the extent that workers did not resave all of their reduced pension contributions, saving would fall. The Brookings Institution, By using this site, you agree to the Terms of Use and Privacy Policy. 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.

And the vast majority of income and wealth for most elderly households is in the form of future earnings which have not yet been taxedhousing which receives extraordinarily preferential treatment under the current taxpension income which already receives consumption tax treatmentSocial Security benefits which are not taxed under fat flat tax ttax, and Medicare benefits which are not and would not be taxed.


The family exemptions make the flat tax progressive for low-income households. PDF Print this page Share: Therefore, rabushkq than the exemptions, the economic effects of the flat tax should be essentially the same as those of a VAT or a sales tax.

Ebel, and Jane G. Once in place, though, they would be subject to the same compromises and pressures as the income tax is. Moreover, many simplification gains could be made through changes in the income tax.

But at the high end of the income distribution, the tax is regressive, just like sales taxes and VATs. Please help improve this article by adding citations to reliable sources.

The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration.

November Learn how and when to remove this template message. Articles needing additional references from November All articles needing additional references All stub articles. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders. Although this difference appears simple, consumption taxes come in many forms. 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.

Altig, David, et al.

Review of Hall & Rabushka

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.

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. 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 rabushkka income.

However, Eastern Bloc countries have generally embraced the flat tax after the fall of the Iron Curtain.


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The estimates cited in this paragraph are taken from Auerbach and private communications with Kent Smetters. October 01, Released online: Because future consumption can be financed only hlal future wages or existing assets, a consumption tax is a tax on future wages and existing assets.

Unsourced material may be challenged and removed. A consumption tax that exempts old assets is just a tax on future wages. Gentry, William, and R.

Without the personal exemptions, the flat tax would be equivalent to a VAT, but with taxes on wages remitted by households rather than business. About half of private savings already receive consumption tax treatment. Allowing for transition relief alone is enough to reduce the impact on growth to zero in the long run.

Economic efficiency and growth Ultimately, increased economic efficiency and growth must be one of the key selling points of a consumption tax. But for many, the tax system is not that complicated. Third, under a pure consumption tax, all capital existing at the time of the transition is implicitly taxed again when the capital is consumed.

No other income is taxable, and no other deductions are allowed. Hence, efforts to evaluate the effects of uprooting the entire tax system must be appropriately qualified. 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.

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. Research Academic Mihir A. Funds placed in pensions, k plans, Keogh plans, and most individual retirement accounts IRAs are halp taxed until they are withdrawn.