The Rationale Behind Flat Tax Rate and Consumption-Based Tax

He says "a admittedly accretion-type impose income is hardly attainable in practice." He proposes quite a "vast simplification," a consumption-type tax under which " cap transactions are treated on a wide-eyed capital flow basis. Investments are simply deducted when made, and proceeds and gross revenue and other capital transactions are added to income when received."

The second furbish up of arguments is that the present tax system is unfair and that a consumption-based tax system would be fairer. The basic argument is that income and gains associated with savings and investiture are subjected to double taxation at the corporate and somebody level and that because of the patchwork of incentives, deductions and loopholes contained in the Internal Revenue jurisprudence, legitimate classes of taxpayers are discriminated against (and others favored). Andrews argues that a consumption-based tax, one "whose institutionalises are apportioned to on-line(prenominal) personal consumption expenditures rather than to total accretion" would be fairer. Hall & Rabushka argue that "a flat tax is the fairest tax of all."

Both Andrews and Rabushka-Hall use some circular reasoning in arguing that a consumption-base

Lester B. Snyder & Marianne Gallegos, Redefining the place of the Federal Income Tax: Taking the Tax Law 'Private' finished the even Tax and Other Consumption Taxes, 13 American J. of Tax Policy, 1-86 (1996).

C. regular army Tax taxation of employee compensation.

The costs of cash wages compensable are deductible under the Flat Tax. Under the USA tax, no deduction is allowed for compensation paid to employees, but payments to independent contractors are fully deductible. The justification for not allowing a deduction for wages is two-fold: (1) to achieve administrative comfort and ease of collection; and (2) to broaden the tax base. The additional issue on the employer imposed by the FICA payroll tax is somewhat offset by a credit which is allowed under the USA Tax, but because the business tax of 11 percent is higher(prenominal) than the 7.65 percent FICA tax on the employer, Snyder & Gallegos say that the credit " give not completely eliminate the double tax burden on labor costs."

Robert E. Hall & Alvin Rabushka, The Flat Tax (2d ed. 1995).

The similarities and differences in the Flat Tax in H.R 2060 and S. 722 (USA Tax) with respect to specific sections of the Code are as follows:

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