An Alternative Flat Tax Proposal: Flat Rate with Lump-Sum Grants

Abstract

This paper suggests a new tax system that builds on the flat tax system, but instead of separately providing for personal deductions and exemptions like most flat tax proposals, this system provides lump-sum grants (a guaranteed income of some sort) for all taxpayers. This combined system has unique strengths that do not exist in the typical flat tax as it eliminates more strategic tax planning, is more neutral to taxpayers’ economic behaviors and can be easily made as progressive as possible. In addition, the combined system makes the impact of government spending on taxpayers’ burdens much more direct and visible than the current income system. As President Obama’s $787 billion Stimulus Package is signed into law, it is especially pertinent to integrate large government expenditures with their potential impact on the tax system because the burdens will eventually be felt by the American taxpayers.