The Economic Effects of A Flat Tax

Policy Reports | Taxes

No. 205
Saturday, June 01, 1996
by Barry J. Seldon and Roy G. Boyd

Effects on Government Revenues

"Instead of reducing government revenues, a 17 percent flat tax would increase them 1.8 percent."

Our model differs from Treasury Department findings that a 17 percent flat tax would reduce government revenues. We find instead that it results in an annual increase in government revenues of 1.8 percent. The difference probably can be accounted for by the fact that our model allows for behavioral changes resulting from changes in incentives and accounts for effects throughout the economy. It finds that the increase in government revenues is driven by the increases in the majority of sectors in the economy and accompanying increases in employment of labor, capital and land which, in our experience in CGE modeling, are relatively large.

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