upplement through the earned-income tax credit (EITC), which is designed to bring families with a full-time, year-round worker up to the poverty level (Hamond 2). For many families, it makes their federal tax burden negative because families receive a net fund. Rep. Armey’s proposal along with many other flat tax proposals would abolish the EITC, which could possibly reduce work incentives for low-paid people while pushing several million families below the poverty line. The large personal tax exemption does not help working poor people, because their incomes are already too low to require federal income tax (Hamond 2). However, there may not be a need for the EITC due to the fact that poor would be able to save and invest more of what they earn because there would no longer be a tax on savings and investments.All business income, whatever the source, is taxed at one rate. The flat tax at the business level would apply to the difference between sales of goods and services on the one hand and the sum of wages, pension contributions, material costs and capital investments on the other (Gale 1, 1). No deductions are permitted for fringe benefits, interest, or payments to owners (Armey 7). The taxation of business at every level makes sure that every part of the economy is taxed. The corporate income tax now raises about 20 percent of total income tax revenues; the Treasury Department estimates that the flat tax would raise revenues from 20 to 42 percent (Gale 1, 1). Proponents of the flat tax use this information to support their claim arguing that business will be likely to invest more because the money that they invest would not be taxed. Opponents claim that moving to this type of tax without a transition period, which would introduce complexity, would hurt industries with little debt but much new investment, such as high technology, while vastly increasing the tax burden on industries with high debt to investment ratios, ...
