http://www.economics.harvard.edu/faculty/jorgenson/papers/baker.pdf
|
Revised April 12, 1999.
This paper was prepared for presentation at the PDF page 24-25: 3. Figure 5 compares the impacts of the Flat Tax and the Sales Tax on GDP. Under the Flat Tax the GDP is only 0.6 percent higher than the Base Case in 1996; the impact of this tax reform on GDP gradually rises, reaching 1.3 percent in 2020. Under the Sales Tax the GDP jumps by 13.2 percent in 1996, but the impact gradually diminishes over time, falling to 9.0 percent in the year 2020. The short-run differences between these two tax reforms are due mainly to the impacts on labor supply, while the long run differences also reflect the impacts on capital accumulation. 4. Figure 6 compares the impacts of the two tax reform proposals on consumption. The impact of the Flat Tax in 1996 is to increase consumption by 3.5 percent, relative to the Base Case. This impact gradually diminishes over time, falling to 1.3 percent by 2020. While it may seem paradoxical that consumption increases with a rise in the consumption tax, the marginal tax rate for low-income taxpayers is reduced to zero, stimulating consumption. By contrast the Sales Tax curtails consumption sharply in 1996, resulting in a decline of 5.6 percent, relative to the Base Case. However, the level of consumption overtakes the Base Case level in 1998 and rises to 5.5 percent above the Base Case in 2020. 5. Figure 7 compares the impact of the two tax reform proposals on investment. The impact of the Flat Tax in 1996 is to depress investment by 8.6 percent, relative to the Base Case. Investment recovers over time, eventually reaching a level that is only 1.7 percent below the Base Case in the year 2020. Substitution of the Sales Tax for existing income taxes generates a dramatic investment boom. The impact in 1996 is a whopping 78.5 percent increase in the level of investment that gradually gives way by the year 2000 to a substantial increase of 16.5 percent, relative to the Base Case. |
The award for bureaucratic understatement goes to the Treasury Inspector General for Tax Administration office. They title a report, "Improvements Are Needed to Ensure Tax Returns Are Prepared Correctly at Internal Revenue Service Volunteer Income Tax Assistance Sites." Here is a excerpt from their conclusion:
"In an attempt to have tax returns prepared, from February through April 2004 Treasury Inspector General for Tax Administration auditors anonymously visited 44 VITA sites nationwide acting as taxpayers and presenting facts based on scenarios designed around income reporting, filing status, exemptions, and the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC). Of the 35 tax returns prepared, none were prepared correctly."
http://www.treas.gov/tigta/auditreports/2004reports/200440154fr.pdf