The Freedom to Choose Flat Tax:
The First Step to Tax Reform
Presented To: The President’s Advisory
Panel on Federal Tax Reform
Presented By: Stephen Moore
Senior Fellow in Economics at
the Cato Institute
May 11, 2005
Problems with the Current Tax System
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Lost Economic Output
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Multiple Levels of Tax on Savings
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Adverse Impact on Trade by Penalizing Investment
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Political Instability
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Costs of Complexity
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How the Tax System Hurts Small Businesses
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Unfairness of the Tax Code
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Why a Flat Tax
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Taxes All Income Once and Only Once
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Eliminates Most Complexity for Individual Tax
Filers
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Fair and Economically Efficient Single Rate
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Increases Savings and Investment
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Flat Taxes All Over the World
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Political Barriers to the Flat Tax
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Well-Funded Special Interest Lobbyists Protect
Their Loopholes
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Many Americans Want to Keep “Sacred Cow”
Deductions
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Transition Costs Are Huge and Complicated
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The Winners and Losers Problem
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“Middle-Class Tax Hike”
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Americans Like “Choice”
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How the Freedom to Choose Flat Tax Works
 Establishes a Hall-Rabushka Flat Tax of 20% for Businesses and
Workers
 Allows Every Worker and Business the Choice to Opt In to the
Flat Tax
 Requires that Workers and Businesses Stay with the Flat Tax Once
They Choose It
 No Transition Rules, Simply Amends the Current Tax Code
 Replaces the AMT with Essentially an Alternative Maximum Tax
 Integration of the Payroll Tax
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The Freedom to Choose Flat Tax: Answering
the Critics
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Large Revenue Losses – Dynamic Versus Static
Adds Complexity By Creating Two Codes –
Eliminates the AMT
Is a Gimmick – Hong Kong System is Optional
Tax Cut for Rich – Americans Believe 25% Should
Be Maximum Tax
Is Inferior to the Straight Consumption Tax – This Is
First Step to Tax Reform
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