While individuals would certainly benefit if the nation adopted a flat tax system, small entreprenurial businesses would enjoy a more level playing field on which to compete with the big guys, according to a study by economist John E. Golob of the Federal Reserve Bank of Kansas City.

• Small businesses would benefit especially from reduced compliance costs and the stronger economy that would result from flatter -- and fairer -- taxes.

• Under a flat tax, most deductions and credits would be eliminated and everyone would pay one rate -- 17 percent to 20 percent in most plans.

• It has been estimated that compliance costs (which hit small firms harder than large ones) would be reduced up to 90 percent under a flat tax.

Some small-firm owners complain that their compliance costs exceed the amount they have to pay in taxes.

Most flat-tax proposals contain a provision to increase the personal exemption of taxpayers. And since taxes paid by start-up companies under Subchapter S of the tax code are generally based on the tax rates of their owners, an increase in the personal exemption would lower the tax liabilities of small entrepreneurs.

• A bill sponsored in the last Congress by House Majority Leader Dick Armey (R-TX) would have raised the exemption from $10,000 to $36,800.

• Of the 3.2 million taxpayers who filed as Subchapter S companies in 1992, about one-third had returns showing their income was less than $40,000.

So a large number of small companies would find much of their income exempt from taxes.

Larger firms would benefit under a flat tax since double taxation of income, dividends and capital gains would be eliminated. Larger companies which offer employee fringe benefits would, however, lose that deduction.

Source: Perspective, "Flat For Growth," Investor's Business Daily, October 30, 1996.