{
  "id": "95-1141",
  "type": "CRS Report",
  "typeId": "REPORTS",
  "number": "95-1141",
  "active": false,
  "source": "EveryCRSReport.com",
  "versions": [
    {
      "source": "EveryCRSReport.com",
      "id": 105069,
      "date": "1995-11-29",
      "retrieved": "2016-05-24T21:03:25.550941",
      "title": "The Flat Tax and Other Proposals: Who Will Bear the Tax Burden?",
      "summary": "Several proposals for major reform of the Federal income tax system, including replacement of\nthe\ncurrent tax with a new type of tax, have been introduced or considered in the 104th Congress. These\nproposals include national sales and value added taxes, the Armey flat tax, and the Nunn-Domenici-\nKerrey USA tax. Representative Gephardt has proposed a major reform of the income tax. These\nproposals alter the tax base, the rate structure, and the point of collection of taxes in ways that have\nimportant economic implications.\n  The Armey flat tax, although often discussed as if it were an income tax, is, like the value added\nand national sales tax, imposed on consumption. The USA tax, billed as a consumption tax, may\nactually be closer to a wage tax. \n  Consumption taxes can be characterized as a tax on old capital and wages. This tax burden may\nbe passed on to owners of old capital and wages in a variety of ways. For indirect taxes such as sales\nand value added taxes imposed on businesses, which would need price accommodation to avoid an\neconomic contraction, this burden is imposed because of reduced purchasing power of wages and\nassets, due to higher prices of consumption goods. For a direct consumption tax, as envisioned as\na major part of the USA tax, the taxes are imposed directly. \n  For the Armey flat tax, however, the tax is split, with the wage tax largely collected directly\n from\nindividuals and the tax on old capital from firms. This unique combination suggests that there will\nbe no need to accommodate the tax with prices, but also implies that stock market values should fall\nand that the burden on old debt (which cannot be altered) will also fall on equities as well. If the flat\ntax rate is about of 20 percent, the stock market should fall by about 30 percent. Some stock values\nwill fall more than others depending on debt shares. (Such effects would also be expected if no price\naccommodations were made to a VAT or sales tax; wages would fall as well). If these effects do\nnot occur, the savings effects expected, in theory, from consumption taxation cannot occur.\n  The USA tax has elements of all three taxes: a small traditional VAT, a collection of a tax on\nold capital from firms, and a direct consumption tax. Because of its extensive transition rules,\nhowever, the tax base deviates substantially from a consumption tax base, and moves in the direction\nof a wage tax base. Its direct effects on the stock market should be smaller than the flat tax, but\nuneven. \n  A consumption tax tends to fall, relative to an income tax, more heavily on individuals who are\nold and are consuming their assets; statistical data also suggests that it tends to fall more heavily on\nlower income individuals. A number of other factors affect these distributional consequences. A\nconsumption tax should, in theory, increase savings, but it is not clear from empirical evidence how\nmuch of an effect would occur. Much of this savings effect would be undermined under the\ntransitional rules of the USA tax, or if the predicted changes in stock market values do not occur in\nthe flat tax.",
      "type": "CRS Report",
      "typeId": "REPORTS",
      "active": false,
      "formats": [
        {
          "format": "PDF",
          "encoding": null,
          "url": "http://www.crs.gov/Reports/pdf/95-1141",
          "sha1": "69460b26082e4ee80f67a9fdf1ebfaa9904e3c2b",
          "filename": "files/19951129_95-1141_69460b26082e4ee80f67a9fdf1ebfaa9904e3c2b.pdf",
          "images": null
        },
        {
          "format": "HTML",
          "filename": "files/19951129_95-1141_69460b26082e4ee80f67a9fdf1ebfaa9904e3c2b.html"
        }
      ],
      "topics": []
    }
  ],
  "topics": [
    "Economic Policy"
  ]
}