Analysis of the Tax Burden and Compliance Costs of the Armey-Shelby Flat Tax V. 1

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1 Arthur P. Hall, An Analysis of the Tax Burden and Compliance Costs of the Armey-Shelby Flat Tax 1 (1995)

handle is hein.taxfoundation/srfcxz0001 and id is 1 raw text is: TAX 7Mlw-
FOUNDATION
July 1995,
No. 52

An Analysis of the Tax Burden and
Compliance Costs of the Armey-Shelby Flat Tax

Representative Dick Armey (R-Texas) and
his Senate co-sponsor Richard Shelby (R-Ala.)
have formally introduced legislation that
proposes to replace the current federal income
tax system with a flat tax. As proposed, the
plan would set the tax rate at 20 percent for
two years and then reduce the rate to 17
percent in the third year of enactment.
As Figure 1 shows, if the Armey-Shelby

plan were enacted in 1996, it could reduce the
tax-related burden for the average taxpayer by
an estimated 13.5 percent (from $7,800 to
$6,740) and increase federal tax revenues by
almost $5 billion. The reduced burden comes
from the taxpayer savings that would result
from reducing the high paperwork cost
associated with the income tax.
The Tax Foundation estimates that the

Figure I
Average Total Individual Tax Burden under Current Income Tax and Armey Flat Tax, 1996

$7,800

$6,600 $6,640

6,740

* Current System
E Armey (20%)

Total
Burden

Source: Tax Foundation.

By Artbur P. Hall, Ph.D.
Senior Economist
Tax Foundation

$8,000
$7,000
$6,000
$5,000
$4,000
$3,000

$2,000
$1,000

$0 -

$1,200

Tax Burden

Compliance
Costs

J