American Taxation

I found Mr. Gordon’s conclusion about the merits of a flat tax on income to be a bit misleading.

While he does not make clear exactly how a flat income tax would apply to corporate income, I can only presume that he has in mind a tax similar to proposals made by the Republican presidential candidate Steve Forbes, the House Majority Leader Dick Armey, and the economists Robert Hall and Alvin Rabushka. It is not true to say that such a tax would tax “all income but. . . only once.” These flat-tax proposals envision levying a “cash flow” tax at the corporate level with immediate and full deduction of all capital expenses. As a result, most income from capital would not be taxed. For most individuals, over the course of a lifetime the Hall-Rabushka/Armey/Forbes flat tax would be equivalent to a tax on wages and salaries. In fact, the proposed personal exemption would provide the only real difference between the flat tax and a consumption-based tax.