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- Title
Deconstructing the income tax.
- Authors
Slemrod, Joel
- Abstract
The article focuses on the fundamental tax reform, in the form of the flat tax. The flat rate is a key component, because it allows business taxation to be final, rather than having it serve as a withholding arrangement that must be fine-tuned at the personal level. Moreover, under a single-rate system, transactions between individuals or between government and individuals that do not generate income do not have tax consequences, which would not be true in a graduated-rate system. The secret of the flat tax is also likely to be its political downfall. Many taxpayers accustomed to the current income tax will not accept as fair a personal tax base that does not include interest, dividends, and other forms of capital income, arguments about withholding not withstanding. This is somewhat ironic given that one of the flat tax's advantages compared to the value-added-tax (VAT) is that its exemption level facilitates a progressive distribution of the tax burden. This perceptual obstacle may not apply to the VAT itself, however, which is entirely remitted by businesses. Furthermore, both the flat tax and the VAT may be resisted by the business community, which will observe a large increase in tax liability and may not be persuaded by economists' arguments about tax incidence and tax shifting.
- Subjects
UNITED States; FLAT-rate income tax; INCOME tax; FLAT rates; TAX incidence; TAX shifting; VALUE added (Marketing); TAXATION
- Publication
American Economic Review, 1997, Vol 87, Issue 2, p151
- ISSN
0002-8282
- Publication type
Article