Some tax experts are recommending the adoption of a flat tax coupled with removal of the cap on income subject to Social Security payroll taxes. They contend this would make the flat tax easier to sell politically by erasing some of the benefits a flat tax would extend to the wealthiest Americans.

Here is an outline of the plan and how it would affect the rich:

• Marginal income tax rates now range from zero to 39.6 percent, as incomes rise.

• A flat tax or a national sales tax, with a rate of 20 percent or less, would obviously greatly reduce taxes imposed on the highest earners.

• Increasing or eliminating the current cap of $68,400 a year on which the 12.4 percent Social Security payroll tax is levied would increase the tax bills of the wealthy.

• Eliminating the cap would make it possible to reduce the payroll tax rate by nearly 2 percent without reducing the overall flow of revenues into the system -- or cutting anyone's benefits.

In 1996, the payroll tax raised roughly $379 billion. Proponents of the tradeoff point out that if all wage income had been taxed, with the cap eliminated, an additional $64 billion would have been raised. If income from dividends, interest and capital gains were also subjected to the Social Security tax, receipts would have increased by another $68 billion. If this additional capital income were included, it would be possible to reduce the rate by 3.3 percent, thus allowing low- and middle-income households the opportunity to build private retirement accounts.

Source: Alvin Rabushka (Hoover Institution), "Flatten the Payroll Tax, Too," Wall Street Journal, December 4, 1998.

For more on the Flat Tax & Alternative Tax Systems http://www.ncpa.org/pi/taxes/tax7.html