1. The Freedom to Choose Flat Tax: The First Step to Tax Reform
Presented To: The President’s Advisory Panel on Federal Tax Reform
Presented By: Stephen Moore
Senior Fellow in Economics at
the Cato Institute
May 11, 2005

2. Problems with the Current Tax System
Lost Economic Output
Multiple Levels of Tax on Savings
Adverse Impact on Trade by Penalizing Investment
Political Instability
Costs of Complexity
How the Tax System Hurts Small Businesses
Unfairness of the Tax Code

3. Why a Flat Tax Taxes All Income Once and Only Once
Eliminates Most Complexity for Individual Tax Filers
Fair and Economically Efficient Single Rate
Increases Savings and Investment
Flat Taxes All Over the World

4. Political Barriers to the Flat Tax
Well-Funded Special Interest Lobbyists Protect Their Loopholes
Many Americans Want to Keep “Sacred Cow” Deductions
Transition Costs Are Huge and Complicated
The Winners and Losers Problem
“Middle-Class Tax Hike”
Americans Like “Choice”

5. How the Freedom to Choose Flat Tax Works
Establishes a Hall-Rabushka Flat Tax of 20% for Businesses and Workers
Allows Every Worker and Business the Choice to Opt In to the Flat Tax
Requires that Workers and Businesses Stay with the Flat Tax Once They Choose It
No Transition Rules, Simply Amends the Current Tax Code
Replaces the AMT with Essentially an Alternative Maximum Tax
Integration of the Payroll Tax

6. The Freedom to Choose Flat Tax: Answering the Critics
Large Revenue Losses – Dynamic Versus Static
Adds Complexity By Creating Two Codes – Eliminates the AMT
Is a Gimmick – Hong Kong System is Optional
Tax Cut for Rich – Americans Believe 25% Should Be Maximum Tax
Is Inferior to the Straight Consumption Tax – This Is First Step to Tax Reform