>Doug wrote:
>> A flat tax can't be progressive. You can write exemptions and deductions
>> into it, but after some point it gets flat.
>
>True, but you could set up a high rate for all income above $500,000.
I could, and you could, but Hall, Rabushka, Armey, Forbes, and even Jerry Brown wouldn't.
This is from Citizens for Tax Justice's website <http://www.ctj.org/html/hallrabh.html>:
Quotes from Robert Hall and Alvin Rabushka, Low Tax, Simple Tax, Flat Tax (1983).
Hall and Rabushka were the authors of the original 19% version of the Armey flat tax plan. Hall and Rabushka's plan was supposed to be revenue neutral, and therefore had lower exemptions from the wage part of the tax:
* The plan "will be a tremendous boon to the economic elite." p. 67.
* "Now for some bad news. . . . it is an obvious mathematical law that lower taxes on the successful will have to be made up by higher taxes on average people." p. 58.
* The plan "would raise taxes by 3 to 5 percent of income from the lowest income groups up to those with incomes of $75,000. Then the effect would gradually die out, so that families with incomes of around $125,000 would come out even. Then the truly successful get a better and better deal. Families with incomes around $285,000 receive tax breaks of about 7 percent of income, those with incomes of $1.5 million get 10 percent, and the handful with incomes approaching $4 million in 1979 get 13 percent." p. 59. [Note: income figures are updated to 1995 levels (by the consumer price index) from Hall and Rabushka's estimates for 1979.]
Hall and Rabushka's Estimates of Tax Changes By Income Group Under Their Armey-Style Flat Tax at 1995 Income Levels
tax change
--------------
income dollars % of income
11,974 406 3.4%
19,437 1,021 5.3%
24,497 1,240 5.1%
29,684 1,409 4.7%
37,116 1,703 4.6%
44,728 1,937 4.3%
58,242 2,228 3.8%
70,542 2,354 3.3%
93,051 1,863 2.0%
123,700 -318 -0.3%
186,856 -5,813 -3.1%
284,398 -20,023 -7.0%
530,292 -44,431 -8.4%
1,455,349 -151,595 -10.4%
3,773,916 -499,886 -13.2%
Source: Robert Hall and Alvin Rabushka, Low Tax, Simple Tax, Flat Tax (1983), p. 125. Dollar figures were adjusted (by Citizens for Tax Justice) to 1995 levels by the change in the consumer price index.
NOTE THAT THE PERCENTAGES IN THIS TABLE ARE PERCENTAGES OF INCOME, NOT PERCENT CHANGE IN TAX. Thus, a 4% increase for a family with income of $50,000 is equal to 0.04 * 50,000 or $2,000--not 4% multiplied by the current tax liability (a much smaller number).
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The Hall-Rabushka plan is a disguised consumption tax:
At a Senate Finance Committee hearing back in 1982, Sen. Bill Bradley (D-N.J.) asked Hall: "So you are advocating a consumption tax?" To which, Hall responded: "That's right, but we are careful not to label it as a consumption tax."
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