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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For additional analysis of the growth effects of tax reform, see Engen et al. Rabushhka the extent that workers did not resave all of their reduced pension contributions, saving would fall.

A consumption tax taxes saving only once: 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.

Surely, the strongest argument for exempting old capital from taxes is fairness. Hoover Institution Press, You can help Wikipedia by expanding it.

Relatively few elderly households finance much of their living expenses by other assets, and those that do tend to be very well off. An income tax taxes savings both when tas money is earned and again when the savings earn interest. Although estimates vary, a recent study suggests that a pure flat tax proposal with limited personal exemptions would raise economic output by between 2 and 4 percent over the first nine years and between 4 and 6 ttax in the long run.

Can we get there from here? The business tax would be set equal to the highest tax rate on rabuwhka income. 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 purposes.


Certainly, not having a transition is simpler.

The Hall-Rabushka system is often called the “flat tax”: Posting UI research papers on other websites is permitted subject to prior approval from the Urban Institute—contact publicaffairs urban. 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 of income.

Moreover, many simplification gains could be made through changes in the income tax. But the introduction of a consumption tax would reduce the pretax interest rate, so that the rate of return on these forms of saving would fall, which could reduce saving in these forms.

Hall–Rabushka flat tax – Wikiwand

Second, within any age group, wealthy households lfat most of the saving. And fundamental tax reform would not end the demands for special treatment that have so tangled the income tax. Tax rate Flat Progressive Regressive Proportional. Hall and Rabushka have consulted extensively in designing flat taxes.

If you halo unable to access or print the PDF document please contact us or call the Publications Office at However, Eastern Bloc countries have generally embraced the flat tax after the fall of the Iron Curtain. Hoover Institution Press,p.

A third concern is how reform would affect different sectors of the economy. Pros and f,at of the flat tax In principle, replacing 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.

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Hall–Rabushka flat tax

Under an income tax, pensions are a tax-preferred form of saving. Funds placed in pensions, k plans, Keogh plans, and most individual retirement accounts IRAs are not taxed until they are withdrawn.

The Hall—Rabushka flat tax may include an exemption, which allows the tax to preserve progressivity. Not having a transition is also more efficient. Effects on businesses and investment would be complicated.

Joel Slemrod Gabriel Zucman. But those older households have received transfers through Social Security and Medicare that far outreach what they have put in. Even if a consumption tax is the right system for an economy starting from scratch, it may not be the right way to reform an existing system.

The transition rules could be very complex, and the transition period could stretch out for years. Unsourced material may be challenged and removed. Such reasoning is straightforward but incomplete.

Flat Tax: An Overview of the Hall-Rabushka Proposal

November Learn how and when to remove this template message. The family exemptions make the flat tax progressive for low-income households.

Gentry, William, and R. But it would also remove the deductibility of fla payments and of state and local taxes, and this could induce dramatic changes. Gale Read complete document: These changes would, of course, require higher rates.

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. PDF Print this page.