Suppose the United States were to convert its tax system from an income tax to a flat tax. For individuals, there would be no itemized deductions allowed, a high standard exemption (thus low income taxpayers would not have to file returns), and tax exemptions for dividend and interest income. Businesses could deduct all expenditures on salaries and immediately expense asset acquisition costs. Would such a tax system eliminate incentives to shift activities (a) from one period to the next, (b) from one type to another, and (c) from one pocket to another? Do you believe a flat tax with no itemized deductions is politically feasible in the United States?

  • CreatedAugust 06, 2015
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