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The Freedom to Choose Flat Tax: The First Step to Tax Reform

The Freedom to Choose Flat Tax: The First Step to Tax Reform. Presented To: The President’s Advisory Panel on Federal Tax Reform. Presented By: Stephen Moore Senior Fellow in Economics at

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The Freedom to Choose Flat Tax: The First Step to Tax Reform

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  1. The Freedom to Choose Flat Tax:The First Step to Tax Reform • Presented To: The President’s Advisory Panel on Federal Tax Reform • Presented By: Stephen Moore • Senior Fellow in Economics at • the Cato Institute May 11, 2005

  2. Problems with the Current Tax System • Lost Economic Output • Multiple Levels of Tax on Savings • Adverse Impact on Trade by Penalizing Investment • Political Instability • Costs of Complexity • How the Tax System Hurts Small Businesses • Unfairness of the Tax Code

  3. Why a Flat Tax • Taxes All Income Once and Only Once • Eliminates Most Complexity for Individual Tax Filers • Fair and Economically Efficient Single Rate • Increases Savings and Investment • Flat Taxes All Over the World

  4. Political Barriers to the Flat Tax • Well-Funded Special Interest Lobbyists Protect Their Loopholes • Many Americans Want to Keep “Sacred Cow” Deductions • Transition Costs Are Huge and Complicated • The Winners and Losers Problem • “Middle-Class Tax Hike” • Americans Like “Choice”

  5. How the Freedom to Choose Flat Tax Works • Establishes a Hall-Rabushka Flat Tax of 20% for Businesses and Workers • Allows Every Worker and Business the Choice to Opt In to the Flat Tax • Requires that Workers and Businesses Stay with the Flat Tax Once They Choose It • No Transition Rules, Simply Amends the Current Tax Code • Replaces the AMT with Essentially an Alternative Maximum Tax • Integration of the Payroll Tax

  6. The Freedom to Choose Flat Tax: Answering the Critics • Large Revenue Losses – Dynamic Versus Static • Adds Complexity By Creating Two Codes – Eliminates the AMT • Is a Gimmick – Hong Kong System is Optional • Tax Cut for Rich – Americans Believe 25% Should Be Maximum Tax • Is Inferior to the Straight Consumption Tax – This Is First Step to Tax Reform

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