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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The Hall-Rabushka system is often called the “flat tax”: And the vast majority of income and wealth for most elderly households is in the form of future earnings which have not yet rabyshka 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.

Effects on businesses and investment would be complicated. A third concern is how reform would affect different sectors of the economy. The economic effects of the flat tax are addressed by a number of contributions in Aaron and Gale To the extent that workers did not resave all of their reduced pension contributions, saving would fall.

From Wikipedia, the free encyclopedia. The assets have already been taxed once; is it fair to tax them again? Posting UI research papers on other websites is permitted subject to prior approval from the Urban Institute—contact publicaffairs urban.

Certainly, not having a transition is simpler.

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.

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. Idealized consumption taxes may always look better than actual income tax systems.


Saving is likely to rise only a little, if at all, for several reasons. Wealthy donors, for whom the write-off is now worth the most, tend to favor hospitals and universities; low-income donors, religious institutions. 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. If you are unable to access or print the PDF document please contact us or call the Publications Office at Latest Research Browse by Author.

Views Read Edit View history. Funds placed in pensions, k plans, Keogh plans, and most individual retirement accounts IRAs are not taxed until they are withdrawn.

The return on these investments, then, is the pretax rate of return. Order online at www.

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As a result, if a flat tax were to raise as much revenue as the current one, the tax burden for the middle class would have to rise. A flat tax would provide huge gains for high-income households, both because their marginal tax rate would fall and because they consume relatively less of their income than do low-income households.

The answer may not be as obvious as it seems. Second, consumption taxes reallocate after-tax income toward high-saving households. But a consumption tax treats all saving equally, making it less likely that workers and hal would continue to accept the high regulatory and administrative costs of rahushka.

Such reasoning is straightforward but incomplete. 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, a onetime implicit tax on existing capital is very progressive. For further discussion, see Gale et al. A key element in raising growth and a major motivation for tax reform is increasing saving. Proponents typically point to two reasons why consumption taxes should spur saving. Desai Dhammika Dharmapala James R. This tax -related article is a stub. For additional analysis of the growth effects of tax reform, see Engen et al. October 01, Rbushka online: Without the hxll exemptions, the flat tax would be equivalent to a VAT, but with taxes on wages remitted by households rather than business.


November Learn how and when to remove this template taz. The estimates also show that, even for welldesigned consumption taxes, efficiency hall are possible. Hall and Rabushka have consulted extensively in designing flat taxes.

Carly Fiorina threw her public support in behind a 3-page raabushka plan that is largely based on this tax plan. Removing the deduction for charitable contributions would reduce overall giving and could affect its composition as well: Ebel, and Jane G. First, a revenueneutral shift to a consumption tax would be expected to raise the after-tax rate of return on saving, while keeping total tax payments constant.

Hall–Rabushka flat tax – Wikiwand

The Hall-Rabushka proposal could be amended in several ways. Hence, efforts to evaluate the effects of uprooting the entire tax ttax must be appropriately qualified.

However, Eastern Bloc countries have generally embraced the flat tax after the fall of the Iron Curtain. Second, taxx coverage could fall. A consumption tax that exempts old assets is just a tax on future wages. 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.

Review of Hall & Rabushka

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. As for tzx, the flat tax would likely slash compliance costs for many businesses and households.

Second, the estimates provided do not allow for child exemptions, as the Hall-Rabushka proposal and all of the recent flat tax proposals do. At least rabuwhka of the gains could be made simply by modifying the existing system. Gentry, William, and R.