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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Not having a transition is also more efficient. 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. Economic efficiency and growth Ultimately, increased economic efficiency and growth must be one of the key selling points of a consumption 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.

Third, older households tend to have more assets than younger ones, and taxing existing capital places heavier burdens on older hax.

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

The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.


You can help Wikipedia by expanding it. Once in place, though, they would be subject to the same compromises and pressures as the income tax is. The family exemptions make the flat tax progressive for low-income households. PDF Print this page. Desai Dhammika Dharmapala James R.

Hall–Rabushka flat tax – Wikipedia

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. So exempting old capital removes any presumption that tax reform would result in a more efficient system.

The return on these investments, then, is the pretax rate of return. Research Academic Mihir A.

Hoover Institution Press,p. But those older households have received transfers through Social Security and Medicare that far outreach what they have put in.

Brookings Institution Press, Efficiency gains might arise from five sources: Relatively few elderly households finance much of their living expenses by other assets, and those that do tend to be very well off. Altig, David, et al. 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.

Flat Tax: From The Encyclopedia of Taxation and Tax Policy

The economic effects of the flat tax are addressed by a number of contributions in Aaron and Gale Thus some simplification is likely with tax reform, but it is by no means a certain or lasting outcome. The Hall-Rabushka proposal has served as the blueprint for several proposals to reform the federal tax system, including a proposal introduced by Representative Richard Armey R-Texas and Senator Richard Shelby R-Alabama and one offered by presidential candidate Steve Forbes R in the presidential primaries.


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. Background Consumption is income less rabusshka. But these gains are uncertain and depend critically tsx the details of the reform. 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.

An aspect of fiscal policy. The question remains, though, of how large these gains would be. Latest Research Browse by Author.

Flat Tax: An Overview of the Hall-Rabushka Proposal

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

Economic Effects of Fundamental Tax Reform. Moreover, many simplification flar could be made through changes in the income tax. No other income is taxable, and no other deductions are allowed. Proper attribution is required. Order online at www. Saving is likely to rise only a little, if at all, for several reasons.

Without the personal exemptions, the flat tax would be equivalent to a VAT, but with taxes on wages remitted by households rather than business. And fundamental tax reform would not end the demands for special treatment that have so tangled the income tax.