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Page 175
has been done in the United States. A proportional flat-rate-tax would involve higher absolute payments by persons with higher incomes for governmental services, which is not clearly inappropriate on grounds of benefits conferred. Yet it would avoid a situation where any large numbers could vote to impose on others taxes that did not also affect their own tax burden.
The proposal to substitute a flat-rate income tax for the present graduated rate structure will strike many a reader as a radical proposal. And so it is in terms of concept. For this very reason, it cannot be too strongly emphasized that it is not radical in terms of revenue yield, redistribution of income, or any other relevant criterion. Our present income tax rates range from 20 per cent to 91 per cent, with the rate reaching 50 per cent on the excess of taxable incomes over $ 18,000 for single taxpayers or $ 36,000 for married taxpayers filing joint returns. Yet a flat rate of 23 1/2 per cent on taxable income as presently reported and presently defined, that is, above present exemptions and after all presently allowable deductions, would yield as much revenue as the present highly graduated rate.2 In fact, such a flat rate, even with no change whatsoever in other features of the law, would yield a higher revenue because a larger amount of taxable income would be reported for three reasons: there would be less incentive than now to adopt legal but costly schemes that reduce the amount of taxable income reported (so-called tax avoidance); there would be less incentive to fail to report income that legally should be reported (tax evasion); the removal of the disincentive effects of the present structure of rates would produce a more efficient use of present resources and a higher income.
If the yield of the present highly graduated rates is so low, so
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2 This point is so important that it may be worth giving the figures and calculations. The latest year for which figures are available as this is written is the taxable year 1959 in U.S. Internal Revenue Service, Statistics of Income for 1959. For that year: Aggregate taxable income reported on
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Individual tax returns                   $166,540 million
Income Tax before tax credit       39,092 million
Income tax after tax credit.           38,645 million
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A flat rate tax of 23 1/2 per cent on the aggregate taxable income would have yielded (.235) x $ 166,540 million = $ 39,137 million.
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If we assume the same tax credit, the final yield would have been about the same as that actually attained.

 
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