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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First, a onetime implicit tax on existing capital is very progressive. As a result, if a flat tax were to raise as much revenue as fkat current one, the tax burden for the middle class would have to rise. 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.

Flat Tax: An Overview of the Hall-Rabushka Proposal

Idealized consumption taxes may always look better than actual income tax systems. MIT Press,pp. 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. 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 halp.

The Hall-Rabushka system is often called the “flat tax”: Allowing exemptions for children reduces the effects by about 2 percentage points e.

By using this site, you agree to the Terms of Use and Privacy Policy. Proper attribution is required. Under an income tax, pensions are a tax-preferred form of saving. Tax rate Flat Progressive Regressive Proportional.


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 percent in the long run.

Unsourced material may be challenged and removed. Ebel, and Jane G. Third, the estimates apply to a pure, well-designed consumption tax.

Flat Tax: An Overview of the Hall-Rabushka Proposal

They could even lead to a system that is less efficient and less fair than the one we have. First, many of the gains are also available through judicious reform of the income tax, hapl particular by making the taxation of capital income more uniform. But transition rules likely to be added to a consumption tax to avoid this double taxation fax reduce or eliminate the long-term effect on saving and growth, as noted above. The estimates also show that, even for welldesigned consumption taxes, efficiency losses are possible.

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

As for simplicity, the flat tax would likely slash compliance costs for many businesses and households. Certainly, not having a transition is simpler. 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.

Third, older households tend to have more assets than younger ones, and taxing existing capital places heavier burdens on older generations. Please help improve this article by adding citations to reliable sources.

A key element in raising growth and a major motivation for tax reform is increasing saving. First, the current U.

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So exempting old capital removes any presumption that tax reform would result in a more efficient system. Although the flat tax is more progressive than a VAT, it is more regressive than the current system.


Can we get there from here? November Learn how and when to remove this vlat message. But it would also remove the deductibility of interest payments and of state and local taxes, and this could induce dramatic changes. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders. Posting UI research papers on other websites is permitted subject to prior approval from the Urban Institute—contact publicaffairs urban.

Review of Hall & Rabushka

Allowing for transition relief alone is enough to reduce the impact on growth to zero in the long run. Altig, David, et hakl. Surely, the strongest argument for exempting old capital from taxes is fairness. All but the first and last are attainable under income tax reform. Retrieved from ” https: But these results need to be interpreted carefully. Latest Research Browse by Author. Thus some simplification is likely with tax reform, but it is by no means a certain or lasting outcome.

This tax -related article is a stub. The Hall-Rabushka proposal could be amended in several ways. Funds placed in pensions, k plans, Keogh plans, and most individual retirement accounts IRAs are not taxed until they are withdrawn.

And fundamental tax reform would not end the demands for special treatment that have so tangled the income tax. The family exemptions rabushia the flat hxll progressive for low-income households.