, 141 Cong. The Economist recognized that these effects would cause someshort-term discomfort, but "by shutting off the tap for everybody at once, most taxpayers would gain far more in simplicity and economic efficiency[as well as in equality of tax treatment] - than they would lose."[2 ] After the 1986 Tax Reform Act eliminated many personal deductions, Congress voted in tax increases, a process which was repeated underPresident Bill Clinton in 1993, in order to reduce the budget deficit. 18, 1995) New Republic, p.19. 11, 1996) New YorkTimes, page D 15.
The ultimate burden of VAT taxes are passed on toconsumers in much the same way as are sales taxes. not reinvested.
1995).Jack Kemp, Lower taxes, higher revenues (Sept.  David F.
S5664 (1995). All taxpayers would be taxed, regardless of their source ofpersonal or business income, at the same rate. Proposed variantsof the flat tax would ease its regressive features; however, they might notproduce the necessary revenues at the tax rates currently proposed andmight also lead to further complexity and inequities in the tax code. The philosophical rationalefor this distinction was summarized by tax lawyers Paul O'Neill & RobertLutz, the principal draftsmen of a pending bill in Congress, the USA Tax, which was sponsored by Senator Peter Dominici (R. 1995) USA Today, pp.
N.  Armey, supra, p.
2 6 , 1 4th Cong., 1stSess., 141 Cong.
(Sept. 1994) USA Today, p. Pollack, The flatliners (Sept.
G. Donald, Burdensome taxes (April 11, 1994) Barron's, pp.
This suggests that it may be politicallynecessary to allow home mortgage interest to be deducted in order to securepassage of a flat tax. 1996).
T. E 1461 (1995).
Internal Revenue Code (1997).USA Tax Act of 1995, S. Seemingly as easy or easier to collect as a flat tax, a nationalVAT or retail sales tax would have even more regressive effects than a flattax, diminish state tax revenues and offer opportunities for tax avoidance. TABLE OF AUTHORITIES Statutes and BillsFreedom and Fairness Restoration Act of 1995, H.
Andrews argues that if "the primary, intended, real effect of any general-revenue raising tax is to. 1994) USA Today, pp. R.
All non-business deductions woulddisappear. Thesame risk would be present after a flat tax was adopted, namely, thatCongress would simply raise the flat tax rate. Rec. 84-85.Paul E.
[2 ] America's tax revolution (Jan. Donald, Burdensome taxes (April 11, 1994) Barron's, p. The Armey-Shelby bill and the USA Tax incorporate as their tax onbusiness (BT) a modified VAT, including a deduction for wages and otheremployee costs.  Jack Kemp, Lower taxes, higher revenues (Feb.  Dick Armey, The flat income tax (Nov.
 Andrews, supra, 1116. 22- 23.David F.
Under the USA Tax System, when people earn income save part of it and add to the national stock of savings, they get a tax deduction. Lutz, Unlimited Savings Allowance (USA)Tax System (March 13, 1995), 66 Tax Notes 1482-1574.S.
15. If it is desirable for public policy reasons to subsidize aparticular cause or activity, a better way to do so, in the view of taxprogressives, would be by direct subsidies which would be voted onseparately and openly rather than through the current insidious processthrough which special interests lobby for tax preferences. Other SourcesA better way to pay (Jan. R. 13, 1996) Economist, p.
Rev. 1113-1188.Dick Armey, The flat income tax (Nov. Similar policy arguments can be raised in favor of retaining thededuction for charitable contributions, the retention of tax-free intereston municipal bonds and other worthy causes.
 O' Neill & Lutz, supra, 15 7. E 1461 (1995).  Andrew, supra, 1165-1166. 23. 85.
If it is deemedthat the wealthy are benefiting too much from a flat tax, a direct taxcould be imposed on wealth (as opposed to high incomes), as is the case inabout a dozen European countries. Andrews, A Consumption-Type or Cash Flow Personal IncomeTax (April 1974) 87 Harvard L.
Hall & Alvin Rabushka, The Flat Tax (2d ed. Should an individual be allowed a deduction for the cost ofpremiums paid on life insurance?
.curtail [private] consumption, then it is presumptively fair and efficientto distribute the burden of tax proportionately or progressively inrelation to levels of consumption." Bradford says that such a tax wouldviolate the principle of vertical equity or the concept that "those withbetter circumstances should bear more of the tax burden." Most proposals in current circulation would allow thresholdexemptions and deductions for lower income taxpayers. 152. Tex.
) and Senator John Shelby (R.  Robert E.  Id. The difficulty with allowingsuch deductions is that they are likely to lead an endless demand foradditional deductions (what about catastrophic medical expenses, forexample?
) and thus vitiate the principal benefits of the flat tax itself.  Alan Schenck, The Plethora of Consumption Tax Proposals: Puttingthe Value Added Tax, Flat Tax, Retail Sales Tax and USA Tax in Perspective(Fall 1996) 33 San Diego L. Pros and Cons of Sales Taxes A retail sales tax would be imposed on all sales transactions at theretail level. Both retail sales and VATsince they are imposed at the point where funds are used for consumptionrather than at their source would capture some income which is unreportedand untaxed under the current system. Tax lawyer Alan Schenck says that"states with retail sales taxes may be opposed [to a national VAT] becausethey fear that it would more difficult for them to raise their sales taxrates.
" All sales taxes, whether they are direct or indirect, hit the poormuch harder than more affluent taxpayers, for the reasons set forth above. One VAT proposal would give families with annual incomes of up to 3 , VAT rebates. . The Armey-Shelby billwould effectively shield the first 33, of taxable income of a family offour, Steve Forbes the first 36, .
Hall & Alvin Rabushka, The Flat Tax (2d ed. McNamee, Death to the IRS (July 31, 1995) Business Week, p.  Clarke E.
Another advantage of a flat tax is that it would eliminate the manyhidden special tax benefits accorded to many groups, especially the largecorporations.  A better way to pay (Jan. Carr & N.  Armey, supra, p.
Some politicians such as Armey talk of filing tax returns on apostcard but the computation of the income and expenses of some individualsand almost all businesses would not be quite that simple.  T. in the national stock of savings. Mex.) and formerSenator Sam Nunn (D.
O'Neill & Robert A.  William D. . They would gaina cash flow advantage from being allowed to expense those investments on acurrent basis, instead of having to amortize them over time, and they wouldbe more attractive to investors than slower growing or less capital-intensive businesses. Miss.
) (the Armey-Shelby bill), the personal flat tax rate starts at 2 percent and would bephased down to 17 percent over three years. The National Commission onEconomic Growth and Tax Reform headed by Jack Kemp proposed a 19 percentrate.
Bradford, Untangling the Income Tax (1986) p. Schnepper, The tax mess who is to blame?
A March, 1995Yankelovich poll for Time/CNN showed that among those surveyed, 8 percentsaid that the current system of tax exemptions and deductions favored therich, 34 percent favored making major changes to the Internal Revenue Codeand another 22 percent wanted to replace it entirely. The failures ofthe current system were summarized by the Economist as follows: "It isriddled with exemptions for everything under the sun; it stifles investmentand entrepreneurship; and it is beastly to comply with.
" Flat taxadvocates Robert Hall & Alvin Rabushka estimate that the annual costs ofdirect and indirect compliance and enforcement are in the hundreds ofbillion dollar range. Financial writer Donald estimates that taxpayersspend 5.2 billion hours a year in tax compliance. The Internal RevenueService (IRS) has become a notoriously inefficient federal agency, seemingly unable to cope with a rising amount of uncollected taxes, 156billion in 1994. The IRS is perceived by many to have a 'bullymentality,' has become overly intrusive in the private lives of sometaxpayers and overbearing in its treatment of them.
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