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CHAPTER
14
ANALYZE OPPOSING VIEWPOINTS
The Flat Tax
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SECTION 1
Some people want to simplify the federal income tax system by establishing a
proportional or “flat” tax in which all taxpayers pay the same rate regardless of income.
Others argue that this approach shifts more taxes onto people with lower incomes. In
1994, Representative Richard Armey proposed a “flat” tax rate set at 17 percent. ◆ Read
the following opposing viewpoints. Then answer the questions that follow on a separate sheet of
paper.
Instead of the hundreds of forms
demanded by the current tax system,
the Armey flat tax would have required
just two postcards. Households would
have used the individual postcard to pay
a 17 percent tax on wages, salary, and
pensions, though a generous family-based
allowance (more than $30,000 for a family
of four) meant that there was no tax on the
income needed to cover basic expenses.
Taxes on other types of income would
have been calculated using the second
postcard, which would have been filed
by every business regardless of its size or
structure. Simply stated, there would have
been a 17 percent tax on net income….
… the great complexity of the income
tax is not attributable to its graduated
(progressive) rate structure, and thus,
adopting a flat (uniform) tax rate will
contribute nothing to simplifying the tax
system….
Proponents of the flat tax claim that it
will encourage savings and investment….
Economists expect only a minor
increase in the savings rate from adopting
a flat tax. This is mostly because the
present income tax already excludes from
taxation a good deal of the savings of
most taxpayers….
The Treasury Department initially
estimated that Armey’s 17 percent flat tax
would cost $244 billion in lost revenue
a year; Treasury also calculated that a
25.8 percent flat tax would be needed to
achieve ‘revenue neutrality.’
—from “The Global Flat Tax Revolution” by Daniel J.
Mitchell from Cato Policy Report, July/August 2007.
—from “The (Conservative) Case Against The Flat Tax”
by Sheldon D. Pollack from www.buec.udel.edu.
Questions to Think About
1. What advantages does the flat tax have, according to its supporters?
2. How closely does the proposed flat tax described here meet the definition of a
proportional tax? Explain.
3. Do you think the proposed flat tax meets the four criteria of a good tax? Explain why
or why not.
4. Do a cost-benefit analysis of a flat tax. How does it compare with the tax system
currently used? Would you favor or oppose a flat tax? Why?
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