The Economic Effects of A Flat Tax

Policy Reports | Taxes

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


  1. The Freedom and Fairness Restoration Act is based on the ideas of Robert E. Hall and Alvin Rabushka of the Hoover Institution. See their book, The Flat Tax, 2nd ed. (Stanford, CA: Hoover Institution Press, 1995).
  2. See the appendix for a description of the CGE model we used.
  3. For example, computable general equilibrium models are discussed at length in J. B. Shoven and J. Whalley, Applying General Equilibrium (Cambridge, U.K.: Cambridge University Press, 1992).
  4. There would still be some differences in taxes on labor as a percent of labor costs, primarily because of the ceiling on wages taxed for Social Security.
  5. This study does not report the details of international trade, although the model includes a foreign sector. Details of foreign trade are available from the authors. Here we only note that aggregate imports and exports both increase as the U.S. market expands.
  6. See M. J. Boskin, "Taxation, Saving and the Rate of Interest," Journal of Political Economy, 1978, 86 pt. 2: S3-S27. We use Boskin's savings elasticity estimates for the various income groups, which average around 0.4, for the CGE simulations reported. Because he found other estimates using other regression specifications, we also tried setting savings elasticities to averages around 0.3 and 0.8 to test the sensitivity of our results. The changes from our original results were negligible.
  7. For example, at a news conference April 18, 1995, President Clinton said, "All the studies I have seen say that all the proposals out there now will raise taxes for people with incomes under $200,000 and lower taxes for people with incomes over $200,000, like my wife and myself, which would be unfair, and that if they don't do that, they explode the deficit." Washington Post, April 19, 1995.
  8. From a New York Times editorial on January 18, for example: "Shutting off tax breaks for the poor at a time when Congress is assaulting every spending program for low-income families borders on the unconscionable."

NOTE: Nothing written here should be construed as necessarily reflecting the views of the National Center for Policy Analysis or as an attempt to aid or hinder the passage of any bill before Congress.

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