niformity of [flat] marginal rates...means that income can be taxed at its source; taxing income at its source will reduce compliance costs and increase compliance rates"” (Armey, Shelby). Taxing business income at the business level does not mean that investment income escapes taxation. As a New York Times editorial points out, "Corporations would pay tax on capital income--dividends and interest--eliminating the need for individuals to keep track of these payments" (Armey).Distribution of Tax Payments The most impressive feature of this flat tax distribution table (shown below) is how much taxes are reduced for extremely low and extremely high incomes. At the low end, millions of households see their tax payments disappear as a result of the philanthropic family deduction. Precisely, about 24 million families who pay federal income taxes now will pay no federal income taxes under the adequately implemented Armey-Shelby flat tax. Taxpayers at the high end of the income scale also see an abundant reduction in income taxes. These tax cuts result from two factors one being the lower tax rate, which is a drop from an average effective rate of 33 percent to about 17 percent and the other is an end to the practice of double taxation of passive income. Flat Tax FlawsAt first glance, the flat tax, may appear to possess an attractive simplicity, that of a single rate and the elimination of all deductions. Less discussed is that it also eliminates from taxation unconsumed capital income-dividends, interest and capital gains. “The notion of a flat tax does have a certain simplistic, egalitarian appeal. But it has three main flaws: 1) It seeks to improve something that is already completely equal; 2) It forces middle-class taxpayers to subsidize the wealthy (especially those incarnations such as Forbes' that exempt "unearned" income such as the interest on his invested inheritance, so that people who actually worked for what little t...
