Flat Tax Essay -- Economics

Flat Tax An Analysis of the Flat Tax Rate System Should the flat tax rate system be implemented? No, the flat tax rate system should not be implemented. In this paper, the pro arguments will be presented, which will affirm the thesis. Then the con arguments will be presented. A rebuttal will then follow, and finally, the author’s conclusion will be offered. The loudest clamor against the flat tax would come from homeowners, Realtors, and builders, who would be hammered as the flat tax does away with deductions for mortgage interest payments and local property taxes. If not negotiated with skill, this issue could be the flat tax movement’s Achilles’ heel. An analysis by the economic consulting firm DRI/McGraw-Hill estimates that the market value of all homes could drop by 15 percent if the tax were introduced without a phase-in period. The brunt of the blow would be borne by those in middle and upper income groups. The flat tax could cause mortgage interest rates to drop by a full percentage point, which would chore up prices. But even so, the DRI economists calculate that were the flat tax enacted with no phase-in period, the price of a $150,000 home could fall to $113,571, a decline of 24 percent. (Dishman 39) Middle class votes who have most of their money tied up in home and hearth will scream blue murder. Nor will they be soothed by economists’ armchair arguments that the government’s roughly $80-billion-a-year tax subsidy to owner-occupied housing has led to a vast overbuilding of the nation’s housing stock. Roger E. Brinner, DRI’s chief economist, figures the plunge in housing value would wipe out more than $1.5 trillion of householder’s net worth. The collapse of the housing market and new home construction, Brinner predicts, would slice 1.2 percent off GDP the year after the flat tax passed, and 1.6 percent in the second year. (Dishman 39) A potentially troublesome law lurks in the flat tax plan of House Majority Leader Richard Armey. The Armey flat tax plans to eliminate business exemption for most fringe benefits, especially employer paid health care. Flat tax enthusiasts like Harvard University economist Dale Jorgenson argue that employers, who look at the total cost of compensation, would simply increase their employees’ cash compensation, leaving them free to purchase their own health insurance. In theory, the workers then bec... ...rth noting that, for the politician who withdraws money from a campaign fund for personal use, even if it is unlawful to do so, this is taxable under the present law. But it appears to be tax-free under the flat tax. The typical wage earner certainly has the right to be skeptical about this â€Å"fair and honest† tax. (Robertson 26) In conclusion, it is clear that the flat tax rate is not a good concept which would be beneficial to the people. The current tax system, for now, is by far the better choice. Bibliography: Works Cited Astrikson, John, â€Å"Flattening Taxes†, Consumer Reports December 1995, 34-37 Darell, Bobby, Modern Economy, New York: Harper, 1994 Dishman, Kris, The Science of Taxation, New Haven: Yale, 1996 Flanegan, Jim, The Treasury, Cambridge: Harvard UP, 1995 Henderson, Margaret. A Look at the Economy, New York: Dell, 1994 McAfee, Charles, The National Debt, New York: Appleton, 1993 McNamara, Ellen, Your Tax Dollars at Work, New York: Bowker, 1995 Miller, Shawn, Commerce and You, New York: Norton, 1996 Robertson, Oliver, Learning the System: New York: Grove, 1994 Tarik, Alfred, The Economy and the System: Boston: Houghton, 1993