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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Thus some simplification is likely with tax reform, but it is by no means a certain or lasting outcome. Please help improve this article by adding citations to reliable sources.

The nonpartisan Urban Institute publishes studies, rabusjka, and books on timely topics worthy of public consideration. MIT Press,pp. A central issue in tax reform is always who wins and who loses.

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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. Halo 01, Released online: To the extent that workers did not resave all of their reduced pension contributions, saving would fall.

Allowing for transition relief alone is enough to reduce the impact on growth to zero in the long run. Ten years hence, we may find that what started as simplicity has once again become a confused jumble. Not having a transition is also more efficient. The Hall-Rabushka flat tax In the early s, Robert Hall and Alvin Rabushka of the Hoover Institution developed a consumption tax system that achieves some of the administrative advantages of a value-added tax VAT relative to a sales tax, while also partially addressing concerns that consumption taxes impose a relatively heavier tax burden on lower-income taxpayers.

This article needs additional citations for verification. 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 the flat taxand Medicare benefits which are not and would not be taxed. Altig, David, et al.


They could even lead to a system that is less efficient and less fair than the one we have. A consumption tax that exempts old assets is just a tax on future wages. The Brookings Institution, The answer may not be as obvious as it seems.

The family exemptions make the flat tax progressive for low-income households. 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. 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.

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All but the first hall last are attainable under income tax reform.

Hall–Rabushka flat tax – Wikiwand

The Hall-Rabushka fflat is often called the “flat tax”: Hoover Institution Press, About half of private savings already receive consumption tax treatment. So exempting old capital removes any presumption that tax reform would result in a more efficient system.

Second, pension coverage could fall. Although this difference appears simple, consumption taxes come in many forms. The estimates cited in this paragraph are taken from Fax and private communications with Kent Smetters.

By using this site, you agree to the Terms of Use and Privacy Policy. The distribution of such capital is more skewed toward wealthy households than is the distribution of overall wealth, which in turn is more lfat than the distribution of income. Perceptions of fairness may also be difficult to retain when, under the flat tax, some wealthy individuals and large corporations remit no taxes to the government while middle-class workers pay a combined marginal tax rate above 30 percent on the flat tax, state income tax, and payroll taxes.


But these gains are uncertain and depend critically on the details of the reform. Posting UI research papers on other websites is permitted subject to prior approval from the Urban Institute—contact publicaffairs urban. 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.

Efficiency gains might arise from five sources: For further discussion, see Gale et al.

A consumption tax taxes saving only once: Order online at www. Research Academic Mihir A. Under an income tax, pensions are a tax-preferred form rabushhka saving. Idealized consumption taxes may always look better than actual income tax systems.

The flat tax rabuushka also be modified to retain the EITC, allow a deduction for charitable contributions, and provide a tax credit a one-to-one reduction in taxes paid under the flat tax for payroll taxes paid. The Hall—Rabushka flat tax may include an exemption, which allows the tax to preserve progressivity.

Review of Hall & Rabushka

Proper attribution is required. Such reasoning is straightforward but incomplete. Gale Read complete document: 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. The assets have already been taxed once; is it fair to tax them again? Allowing exemptions for children reduces the effects by about 2 percentage points e. Saving is likely to rise only a little, if at all, for several reasons.

Because future consumption can be financed only from future wages or existing assets, a consumption tax is a tax on future wages and existing assets.