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Abstract
Proponents of the flat tax argue that, by lowering the marginal rate that faces taxpayers, more work and investment effort will be forthcoming, a conclusion that is not universally accepted. The reduction of marginal rates will reduce the amount of tax avoidance and evasion in the country. A flat tax, accompanied by the elimination of deductions and exclusions, will lower the transaction costs of earning a given amount of income, thus increasing the real income of taxpayers. The flat tax will not necessarily cause a redistribution of income toward higher economic groups. One means by which the harmful redistributive effects can be ameliorated is by combining the flat tax with a negative tax. This negative tax, or tax subsidy, provides supplements to the working poor who pay no income taxes under either the current tax system or the proposed flat-tax system.