February 6, 1996 02:35 PM | | Bookmark and Share

The flat tax plan of House Majority Leader Richard K. Armey (R-Tex) calls for a tax rate of 20% for the first two years and a 17% rate in subsequent years. At both rates the tax raises substantially less revenue than the taxes it replaces and targets the tax cuts to the wealthiest of Americans. The taxes being replaced: the personal income tax, the corporate income tax and the estate tax ,currently raise about $750 billion. About $600 billion of that is from the personal income tax.

At a a rate of 20.8% and Armey’s proposed exemptions, the flat tax would raise as much revenue as the taxes it replaces. Alternatively, at the proposed 17% rate, the exemptions could be reduced to make the plan revenue neutral.Congressman Armey has said that he would be willing to amend his plan to be revenue neutral. Such changes would cause the tax increase to substantially larger for middle-income families.

NOTE: Rep. Richard Armey proposes a 20% flat tax rate for 1996 and 1997 and a 17% rate thereafter. Source: All data are from the U.S. Treasury, Dec. 20, 1995. Some additional calculations by Citizens for Tax Justice, January 18, 1996. Figures substantially understate revenue losses and understated required tax rate or exemption reductions necessary to avoid revenue losses because they assume no transition rules.

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