Flat Taxes and the Limits to Reform

Although Congress and the administration are always talking about tax reform, there is currently heightened interest in new, all-inclusive approaches to the problem. According to Rudolph Penner, director of the Congressional Budget Office, “The prospects for radical tax reform are brighter than ever.” In his State of the Union message on January 25, 1984, President Reagan called for the Treasury Department to make a comprehensive study of ways to make the income tax more simple, more efficient, and more equitable. Treasury Secretary Donald T. Regan has indicated that the department will probably recommend some sort of modified flat tax system in its report. The administration is not alone in its interest in flat taxes; each major party has formulated a detailed and comprehensive modified flat tax proposal and has introduced it in Congress. This Economic Commentary examines the nature of flat taxes, the inadequacies in the present system that they would remedy, and the reasons why the alluring goal of a pure flat tax is difficult to achieve.