Abstract
We study a simple flat tax proposal that combines the federal income tax and the payroll tax. This tax reform may have a higher probability of political acceptance by treating the large middle income classes more favorably than other flat tax reform proposals. Our analysis compares the distribution of marginal and average tax rates across income groups for the current system, and two revenue neutral flat tax alternatives. Replacing the current federal income tax rate structure and the payroll tax with a flat 36 percent tax on personal and business income above a generous threshold offers significant tax relief for the lowest income classes, offers middle income earners lower average tax rates and spreads the burden of the present regressive payroll tax to the highest income classes.
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