IMPACT OF A FLAT TAX ON HOME OWNERSHIP, CHARITABLE GIVING
January 23, 1996
Anti-flat tax alarmists argue that a pure, no-deductions-of-any-kind flat tax would rock the housing market and discourage charitable giving. Many policy analysts argue otherwise.
Take home ownership:
- Without deductions for any interest paid, even by businesses, and no taxes on any interest received, interest rates would fall.
- In a hypothetical 25 percent tax bracket, a 10 percent interest rate equals an after-tax yield of 7.5 percent for both borrower and lender.
- If interest were neither deductible nor taxable, the yield would fall to the same 7.5 percent rate.
- The resulting lower rates would reduce mortgage interest payments.
Most public finance economists maintain that a low flat tax would increase overall economic growth by one percentage point or more a year for the next seven years.
What about those charities?
- From 1980 to 1989, total contributions increased from $49 billion to $107 billion -- despite a fall in the top marginal tax rate from 70 to 28 percent.
- Strong economic growth, which increases real incomes and wealth, is a more important factor in giving than any tax break.
Source: Alvin Rabushka (Hoover Institution), "Flat Tax Lite," New York Times, January 23, 1996.
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