By letting firms deduct all capital purchases in the year they are made, it would encourage greater investment. It would be much simpler than existing taxes. The Treasury Department estimates that the business tax would raise 42% of revenues under a flat tax. The corporate income tax now raises about 20% of total income tax revenues. The business tax would apply to incorporated as well as unincorporated businesses. No other income would be taxed, and no other deductions would be allowed.Īt the business level, the tax 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. A new, single tax rate would apply to taxable income for businesses and households.Īt the household level, wages and pension benefits would be taxes above an exemption adjusted for family size. The flat tax would repeal the existing individual and corporate income taxes. That, however, is the source of many of the flat tax’s largest potential gains and costs. Discussion of the flat tax to date has focused on the household-level tax, overlooking the business tax, overlooking the business tax.
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