Fed Flat Tax

7/31/2019 Fed Flat Tax

1/21

Review of Agricultural EconomicsVolume 24, Number 1Pages 160180

The Effects of a Federal FlatTax on Agriculture

Christine A. Wilson, Allen M. Featherstone,

and Del D. Elffner

This study examines the impact of a federal flat tax on agriculture by determining thetax liability under the current and flat tax systems using actual farm records. The studyconsiders the linkages between agriculture and the rest of the economy by examining theimpact of a flat tax on interest rates and capital investment and how those changes wouldaffect agriculture. Resultsindicate thatroughly63% of agriculturalproducers would benefitfrom a flat tax in terms of lowering taxes paid. Under the flat tax, larger farms and moreprofitable farms would be relatively better off.

Taxation and tax reform are subjects that receive a great deal of attention anddiscussion in Congressional and other political debates. Recent tax reformproposals have included the Flat Tax, the USA Tax, and the National Sales Tax(Carman). Much of the reason for tax reforms staying power as a topic for de-

bate arises from continued public dissatisfaction with the current system. Mostalternative tax proposals, therefore, concentrate on resolving the publics dissat-isfaction by improving the simplicity, efficiency, and equity of the current incometax system.

TheNational Commission on Economic Growth andTax Reform recommendedthe development of a new simplified income tax code based on six major policypoints. The Commission suggested that any new tax code should: (1) have a singletax rate; (2) increase personal exemptions to remove the burden from those leastable to pay; (3) lower tax rates for families; (4) allow payroll tax deductibility forworkers; (5) end the biases against work, saving, and investment; and (6) makethe new tax system difficult to change. In addition to its policy recommendations,

Christine A. Wilson is an Assistant Professor in the Department of Agricultural Eco-nomics, Purdue University, West Lafayette, Indiana; Allen M. Featherstone is a Profes-

sor in the Department of Agricultural Economics, Kansas State University, Manhattan,Kansas; and Del D. Elffner is a Vice President with Stockgrowers State Bank, Maple Hill,Kansas.


2/21

The Effects of a Federal Flat Tax on Agriculture 161

the Commission suggested six principles that should guide any new tax system.These principles are: (1) economic growth through incentives to work, save, andinvest; (2) fairness foralltaxpayers; (3)simplicity so that anyonecanunderstand it;

(4) neutrality that lets people and not the government make choices; (5) visibilityto let people know the cost of government; and (6) stability so that people can planfor the future. Although the Commission did not endorse a specific tax proposal,some argue that current flat tax proposals are consistent with these policies andprinciples.

A flat tax is one in which the marginal tax rate remains constant as taxableincome increases. Marginal tax rates differ from average tax rates in that themarginal tax rate is the fraction of an additional dollar of income that must bepaid in taxes, whereas average tax rates are the total amount of taxes paid divided

by the individuals before-tax income. Robert Hall and Alvin Rabushka were the

first to formally propose a flat tax, and most flat tax proposals are derivatives oftheir proposal.

The HallRabushka proposal draws heavily on the principle of a consumptiontax, under which consumers are taxed on what they take out of the economy, notwhat they put in. Hall and Rabushka suggest that all income should be taxedonly once, at the same rate, and taxed as close to the source as possible. Theseauthors believe the poorest families should pay no tax, and lower-income individ-uals should pay a smaller fraction of their incomes in tax than those with higherincomes. Hall and Rabushka argue that a flat tax would simplify tax returns formany wage earners. Their proposal has two classifications of income, business

income and individual wage income, both taxed at the same rate.On March 9, 1999, Representative Richard Armey (R-Texas) introduced H.R.1040 to the 106th Congress.1 The bill is an update of The Freedom and FairnessRestorationActof1995,andisapureflattaxonincomebasedonthe flattaxproposalput forth in the book by Hall and Rabushka. H.R. 1040 would replace the currentprogressive tax system with a 19% flat tax that would have remained in effectuntil December 31, 2000, followed by a reduced tax rate of 17% thereafter.2 Therate reduction would occur provided revenues to the Treasury increase, federalspending falls, and the deficit meets certain preestablished targets.

Under Representative Armeys flat tax, the Social Security tax would remainintact. Although Social Security payments would no longer be deductible, the

employer would still be obligated to make one-half of the employees Social Se-curity contribution, with the employee contributing the other half. Self-employedindividuals could choose to have their entire business income taxed at the flat taxrate, or pay themselves a salary that could be deducted from gross revenue, low-ering their business income. The salary would then be taxed at the flat tax rateand the Social Security tax rate (15.3%), after personal deductions were removed.

The objective of this study is to evaluate the impact of a flat tax on agriculture.Tax models are used to determine the tax liability under the current system andthe flat tax system, to analyze the shift in the tax burden using actual Kansasfarm records, to evaluate the equity and progressivity of the current and flat tax

systems, and to determine the winners and losers resulting from a change in thetax system. The study also examines the impact of a flat tax on interest rates andcapital investment.


3/21

162 Review of Agricultural Economics

Previous StudiesSeveral studies have examined the effects of a flat tax on the economy and

agriculture. Fellows concluded that a flat tax system may not spur much economicgrowth since the work/leisure substitution and income effects would probably

be nearly offsetting. Adams and Harl indicated that eliminating the deduction forinterest paid under a flat tax would significantly impact young, highly leveragedfarmers. The authors contend that without this deduction, many indebted farmerscould have a negative net farm income, yet find they still owe taxes at the end ofthe year.

Adams and Harl also suggested higher land prices and land-lock as two ad-ditional effects of a flat tax. Under most flat tax proposals, capital gains taxationand the present scheme of depreciation for business assets are eliminated, allow-ing capital purchases to be deducted as business expenses in the year they are

incurred and fully taxed in the year of sale. Adams and Harl suggested farmerswill purchase additional land to reduce their tax liability during a high-incomeyear, but that the large tax liability associated with the sale of the land will createa disincentive to sell, creating a lock-in effect, and potentially higher land prices.Adams and Harl concluded that increased land prices, coupled with the elimi-nation of interest deductions, would create a barrier for individuals wanting toenter farming.

Duncan, Koo, and Taylor estimated the effect of a flat tax on representativefarms in North Dakota for 19962003. They concluded that only large-size farmswould experience tax savings under the flat tax system; small- and medium-sized

farms would pay higher federal taxes.Carman and Boehlje examined past studies of changes in income tax laws fromwhich they suggested several consequences of a flat tax. Some of the effects theyoffered were increased farmland prices, increased nonfarm investor interest, anddecreased land availability. These effects could lead to greater financial require-ments and larger barriers to entry into farming. Carman and Boehlje also sug-gested that the reduced after-tax cost of capital purchases due to full expensing inthe purchase year would encourage greater capital investment. They concludedthat greater capital investment would increase the mechanization of agriculture,increase business activity in machinery and equipment industries, and reducefarm employment. They further concluded that increased tax-sheltering could

lead to increased production over time.Richardson et al. simulated the impacts of a flat tax on 70 representative crop,

livestock, and dairy farms for a seven-year period. Their research indicated thathighly leveraged farmers would face higher taxes under a flat tax due to the lossof the interest expense deduction. They also suggested that farmers would adjusttheir equipment investment in order to capitalize on the ability to fully expenseassets in the year they were purchased.

Carman outlined several expected impacts of a flat tax. He suggested that fulltaxation of land sales would discourage selling, leading to decreased land avail-ability and increased land prices. He also suggested that the immediate deduction

of land purchases would lead to increased demand for land and increased landprices. Carman further outlined that a reduction in land availability and higherland prices, as well as the lack of interest deductibility, would create larger barriersto entry into farming.


4/21


Friedman suggested that a flat tax system would benefit taxpayers and theeconomy. Friedman stated that, A low flat rateless than 20%on all incomeabove personal exemptions with no deductions except for strict occupational ex-

penses would yield more revenue than the present unwieldy structure. Taxpayerswould be better off because they would be spared the costs of sheltering incomefrom taxes; the economy would be better off because tax considerations wouldplay a smaller role in the allocation of resources (p. 306).

One issue that some previous studies have neglected is the effect that a flattax could have on interest rates. John Golob, a Kansas City Federal Reserve Bankeconomist, estimated that the elimination of the taxation of interest would causeinterest rates to drop 25% to 35%. With the consideration of secondary factors, heconcluded the drop would likely be closer to 25% than 35%.

DataData used in this study are from the Kansas Farm Management Data Bank and

a tax survey sent to members of the Kansas Farm Management Association. TheFarm Management Data Bank contains all the necessary information for deter-mining the tax liability under the current federal tax system for each associationmember, except for the cost basis of livestock and other items purchased for resale,and capital or ordinary gains or losses. Because these figures are not explicitly in-cluded in the data bank, a survey to ascertain these data was sent to all membersenrolled in the Farm Management Association.

The tax survey asked association members for the cost basis of livestock and otheritems purchased for resale, found on line 2 of the Schedule F; the capital gains figure,found on line 13 of the 1040 (taken from Schedule D); and the other gains figure,found online14 of the 1040 (taken fromForm4797), for 1990 through 1994. The sur-vey data were combined with the Farm Management Data to complete this study.

The tax survey was sent to 2,071 members of the Farm Management Asso-ciation. Survey data for 653 producers were received. Of those, 593 were soleproprietorships, 27 were partnerships and 33 were corporations. Only the resultsfor the sole proprietorships are reported in this study since not enough nonfarminformation was available to construct a complete financial picture for those in-dividuals involved in partnerships and corporations.

Empirical Tax ModelsTax models were developed to analyze the tax liability under the current federal

tax system and a federal flat tax. The models account for both income and self-employment taxes.

Current Tax Model

The Current Tax Model (CTM) was developed using the Schedule F to calculate

farm income and expenses for sole proprietorships.3 Net farm income or loss wasused to calculateself-employment taxes andFederal income taxes owed. ScheduleSE and Form 1040 were used to determine self-employment taxes, Social Securitytaxes for wages paid, and Federal income taxes.


5/21


All farm expenses were broken into four classes of operating expense, deprecia-tion, interest paid, and real estate taxes, for comparison among tax plans. Depreci-ation is determined on a market-value basis instead of a tax basis. Farm expenses

were subtracted from farm income, resulting in net taxable farm profitintheCTM.Once net taxable farm income, capital gains, other gains, and self-employmenttaxes were determined, then total income and adjusted gross income were calcu-lated. Total income was determined by adding net taxable farm income, capitalgains, ordinary gains, and any net operating losses carried forward from previ-ous years. Adjusted gross income was calculated by subtracting one-half of theself-employment tax value from total income. Adjusted gross income was thenused to determine taxable income.4

The CTM calculated taxes due by using five income brackets ranging from 15%to 39.6%. Taxes due were combined with the full value of self-employment, Social

Security, and Medicare taxes, where applicable, to arrive at the final tax amountowed and paid by the operator. Table 1 provides sample tax calculations and asummary of the breakdown of income and expenses used in calculating the totaltax liability under each tax plan.

Flat Tax Model

The Flat Tax Model (FTM) calculates the tax liability a Kansas farmer operatingas a sole proprietor could expect to face under a flat tax plan. RepresentativeArmeys original flat tax proposal placed a 20% tax on the difference between

revenue and expenses (if positive) for all business enterprises. Even though H.R.1040 uses a 19% tax rate, we continue to use the rate of the original proposal tosomewhat alleviate critics concerns regarding revenue neutrality. The proposalsubtracts purchases of goods andservices, capital equipment, structures,and landfrom gross revenue to arrive at a base taxable income.

Gross revenue for the FTM was found by combining income variables from theFarm Management Data Bank (Elffner). With only a few exceptions, all incomevariables included in the FTM are identical to the variables included in the CTM.Motor vehicle and machinery sales, building sales, land sales, and sales of breed-ing livestock are included as income in the FTM, but are not included in the CTM.Additionally, in the FTM, all capital assets are expensed at the time of purchase,

and they are not depreciable, which differs from their treatment in the CTM.Expenses used in the FTM are similar to the CTM except that interest paid,

motor vehicle, machinery-equipment, and building depreciation are no longerdeducted. The change in deduction status of these items reflects RepresentativeArmeys proposal to eliminate the interest and depreciation deductions and toexpense all capital purchases the year that they are placed in service.

Income5 in the FTM was determined by subtracting the purchases of goodsand services, capital equipment, structures, and land and livestock from grossrevenue. If income was negative, then a net operating loss occurred, and the losswas carried forward to the next year. Under the Armey plan, a loss would earn

interest equal to the three-month Treasury rate for the last month of that next year,at which time the loss plus the interest earned would be deducted from that yearsnet income. If the net income for that year was again negative, then the combinedloss would be carried forward again, until the loss is offset by income.


6/21


Table 1. Sample tax calculations for the current and flattax systemsa

Current Tax System Flat Tax System

Without nonfarm wagesGross farm income (Schedule F) $392,923.00 $392,923.00Plus: Sales of breeding livestock 3,519.00Plus: Sales of capital assets 5,800.00Plus: Sales of land 0Less: Cost basis of livestock sold 214,266.00Less: Operating expenses 96,747.00 96,747.00Less: Depreciation 18,591.00Less: Interest paid 2,553.00

Less: Real estate taxes 1,056.

00 1,056.

00Less: Purchases of livestock for resale 221,402.00Less: Purchases of breeding livestock 1,200.00Less: Purchases of capital assets 19,549.00Less: Purchases of land 0Net taxable farm income 59,710.00 62,288.00Less: Capital loss (3,000.00)Plus: Other gains 1,310.00Less: Net operating losses 0 0Total income 58,020.00 62,288.00Less: Half of self-employment tax 3,924.45

Adjusted gross income 54,095.

55Less: Standard deduction 5,450.00 18,370.00Less: Personal exemptions 12,300.00 17,160.00Taxable income 36,345.55 26,758.00Federal income tax 5,958.25 5,351.60Self-employment tax (15.3%) 7,848.90 5,436.09

Total income tax & self-employment tax $13,807.15 $10,787.69

With nonfarm wagesNonfarm wages $2,890.00 $2,890.00Taxable income 39,235.55 29,648.00Federal income tax 6,767.45 5,929.60

Self-employment tax (15.3%) 7,848.

90 5,436.

09Total income tax & self-employment tax $14,616.35 $11,365.69

aSample calculations use 1990 tax provisions.

The Armey flat tax would eliminate the current self-employment tax, but leavethe Social Security tax untouched. Self-employed individuals could choose tohave their entire business income taxed at the flat tax rate, or they could choose topay themselves a salary, which would be deducted from gross income, and would

thus lower their business income. The salary would be taxed at the 20% flattaxrateand at the 15.3% Social Security tax rate after personal deductions were removed.This study assumed that producers, acting as rational individuals, would deducta salary that would be exempt from the flat tax for business income. A 15.3%


7/21


Table 2. Taxes for sole proprietors in the current and flat taxmodels (19901994)

StandardMean Deviation

Current tax model with nonfarm wagesFederal income tax $5,945.48 $10,318.01Self-employment tax (15.3%) $3,736.74 $3,115.80Social Security tax $640.57 $1,096.12Total tax $10,322.79 $12,622.18

Flat tax model with nonfarm wages and land transactionsFederal income tax $5,257.76 $9,543.74Self-employment tax (15.3%)a $2,283.11 $1,797.37Social Security tax $640.57 $1,096.12Total tax $8,181.44 $10,528.02

aAssumes that producers choose to pay themselves a salary that is deducted from gross income,and lowers business income. The salary is taxed at the 20% flat tax rate as personal income, but isexempt from the flat tax for business purposes. The tax amount stops when the maximum deductibleincome is reached. The salary is taxed at the 15.3% Social Security tax rate after personal deductionsare removed.

Social Security tax was calculated on the salary, compared to a 20% flat tax ratefor the business purposes.

Table1presentsthetaxcalculationsforbothtaxmodelsforasampleobservationfor 1990, using 1990 tax provisions. Under the FTM, the total tax liability for thesample observation is $10,787.69, which is $3,019.46 less than the tax liability ofthe CTM. The lower taxable income of the FTM decreased taxes by 22% for thesample observation.

Tax Model Results

Table 2 reports the mean tax results for both the CTM and the FTM. Nonfarmwages are included in both models and land transactions are included in the FTM.The flat tax plan assumes the complete expensing of land in the year of purchase,

and it taxes the total sale price of the land when sold.The mean Federal income tax for the CTM was $5,945.48 with a standard de-

viation of $10,318.01, while that for the FTM was $5,257.76 with a standard de-viation of $9,543.74. The mean total tax for the CTM, which included incometax, self-employment tax, and Social Security tax, was $10,322.79 with a standarddeviation of $12,622.18, while that for the FTM was $8,181.44 with a standard de-viation of $10,528.02. The mean total tax for the study indicate that average totaltaxes decline by 21% ($2,141.35) and have less variability under the flat tax systeminvestigated.

Regression AnalysisOrdinary least squares regression was used to determine how farm and per-

sonalcharacteristicsinfluencetheequityandprogressivityofthetaxburdenunder


8/21


the current and flat tax systems and to determine the winners and losers asmeasured by tax payments resulting from a change in tax systems. The regressionanalysis examined the effect that debt, income, size of farm, type of farm, age of

the operator, and family size had on Federal taxes owed. Models were estimatedusing annual data from 1990 through 1994. The dependent variables in the modelswere Federal tax liability and the difference in the total tax liability of the two taxsystems. The independent variables included in the models were the debt-to-assetratio, the net farm income-to-total asset ratio, total assets, the age of the operator,the number of dependents, the type of farm operation, net farm income, and netfarm income squared.

Equity

One major principle for evaluating a tax system is equity. Equity is generallyused to refer to fairness in the tax system, especially fairness of the distributionof the tax burden. Due and Friedlaender indicate that equity or fairness in taxa-tion is ultimately a value judgment, since a scientific specification of an equitabledistribution pattern is not possible. Thus, they contend that the only way an eq-uitable distribution can be devised is by a consensus of attitudes of people in thecontemporary society. The regression used in this study to examine fairness orequity summarizes the tax liability across farms. The dependent variable modeledwas federal taxes owed (in four scenarios) and the independent variables werethe debt-to-asset ratio (DTA), net-farm-income-to-total-assets ratio (NTA), total as-

sets (ASSET

), the age of the operator (AGE

), the number of dependents (DEPD

),and binary variables for the type of farm operation (ICROP, BEEF, DAIRY, HOG,OTHER). The results reported in table 3 indicate that the net farm income-to-totalassets ratio and total assets were positive and significant in both the CTM and theFTM (no change in interest rates). This suggests that more profitable and largerfarms pay more in federal taxes under both tax systems than relatively smallerand/or less profitable farms. Results also show that the debt-to-asset ratio wasnegative and significant in the CTM, but positive and significant in the FTM, im-plying that increasing leverage reduces taxes under the current tax system andincreases taxes in the flat tax system. This result suggests that relatively higher-leveraged farms pay less tax in the current tax system and more tax in the flat tax

system than lower-leveraged firms. Additionally, results indicate that in the CTM,a beef producer pays lower taxes than a nonirrigated crop farmer. The number ofdependents was not statistically significant in either model.

Comparison of the regression results for the two tax plans indicates that theFTM reduces the effect of profitability (NTA) and size (ASSET) on the tax burden.Under the FTM, more profitable farms, as measured by the net-income-to-total-assets ratio, and larger farms, as measured by total assets in dollars, pay relativelylower taxes than under the CTM. However, under the flat tax system, farms withrelatively higher leverage ratios pay higher taxes than in the current tax system.

Progressivity

Vertical equity, or the unequal treatment of unequals,addresses theissue of howto appropriately tax households with different levels of well-being. The terms


9/21


Table 3. Estimated regression coefficients of tax plans forevaluating equity

Flat Tax Model

No Change 12.5% Drop 25% DropCurrent Tax in Pretax in Pretax in Pretax

Variablea Model Interest Rates Interest Rates Interest Rates

R-squared 0.3264 0.3179 0.2725 0.2555

RMSE 10,379.53 8,712.31 8,687.46 8,948.25

Intercept 2,079.61 2,621.23 3,592.24 4,563.26(1,446.50) (1,183.74) (1,180.37) (1,215.80)

DTA 1,627.04 2,304.87* 1,594.11 5,493.10

(678.05) (571.27) (569.64) (586.74)

NTA 53,933 29,848 29,637 29,425

(1,999.48) (1,002.67) (999.81) (1,029.82)

ASSET 0.013724 0.00816 0.004547 0.000934(0.0006) (0.0005) (0.0005) (0.0005)

AGE 34.51 23.00 11.70 0.40(20.20) (16.84) (16.80) (17.30)

DEPD 55.48 123.06 104.81 86.57(165.60) (139.17) (138.77) (142.94)

ICROP 474.34 249.38 396.70 544.02

(770.04) (646.29) (644.45) (663.80)BEEF 1005.19 366.75 665.92 965.09

(495.05) (414.96) (413.78) (426.20)

DAIRY 1,035.55 1,117.62 1,221.83 1,326.04(992.98) (833.72) (831.34) (856.30)

HOG 68.55 1,664.64 1,512.27 1,359.90(1,334.54) (1,120.23) (1,117.04) (1,150.57)

OTHER 523.58 456.04 216.24 23.56(861.12) (722.38) (720.32) (741.95)

Variables that are significant at the 5% level. Standard errors are in parentheses.aThe dependent variable is Federal taxes owed. Independent variables are the debt-to-asset ratio(DTA), net-farm-income-to-total-assets ratio (NTA), total assets in dollars (ASSET), age of theoperator (AGE), number of dependents (DEPD), and binary variables for the type of farm operation:irrigated crop, beef, dairy, hog, and other production (ICROP, BEEF, DAIRY, HOG, OTHER), wherenonirrigated crop production is the base.

progressive, proportional, and regressive are typically associated with verticalequity. A progressive tax is one in which the tax liability as a percentage of incomerises with income. A proportional tax is one in which all people pay the samepercentage of income in tax, regardless of the level of income. Finally, a regressive

tax is one inwhich the tax liability is a smaller percentageof incomefor peoplewithhigher income levels. According to Slemrod and Bakija, the question of verticalequity generally focuses on whether or not the tax burden should be distributedin a progressive manner, and if so, then how progressive should the tax be.


10/21


The amount of federal taxes owed was the dependent variable modeled inexamining the progressivity of each tax plan in this study. The independent vari-ables included were the debt-to-asset ratio (DTA), net farm income (NET), net

farm income squared (NET2), the age of the operator (AGE), the number of depen-dents (DEPD), and binary variables for the type of farm operation (ICROP, BEEF,

DAIRY, HOG, OTHER). Regression results for progressivity in the CTM indicatethat age, net farm income, and net farm income squared were positive and sig-nificant in explaining the federal tax owed, which suggests that increases in thesevariables increase the tax owed (table 4). The net farm income squared variableindicates that the tax paid increases at an increasing rate as income increases inthe CTM. The debt-to-asset ratio, net farm income, and net farm income squared

Table 4. Estimated regression coefficients of tax plans forexamining progressivity

Variablea Current Tax Model Flat Tax Model

R-squared 0.7473 0.7362

RMSE 6,357.16 5,417.86

Intercept 2,582.71 3,619.30

(877.14) (736.56)

DTA 809.50 1,880.79

(419.26) (351.90)NET 0.2049 0.0927

(0.0044) (0.0016)

NET2 4.1E07 1.8E07

(2E08) (1E09)

AGE 24.63 2.07(11.85) (10.12)

DEPD 146.19 4.72(101.49) (86.50)

ICROP 344.64 17.19(463.35) (394.50)

BEEF 32.12 613.50

(300.15) (255.77)

DAIRY 160.50 670.80(608.04) (518.42)

HOG 168.89 771.85(817.23) (696.25)

OTHER 207.02 365.40(527.09) (448.86)

Variables that are significant at the 5% level. Standard errors are in parentheses.a

The dependent variable is Federal taxes owed. Independent variables are the debt-to-asset ratio(DTA), net farm income (NET), net farm income squared (NET2), age of the operator (AGE), numberof dependents (DEPD), and binary variables for the type of farm operation: irrigated crop production,

beef production, dairy production, hog production, and other production (ICROP, BEEF, DAIRY,HOG, OTHER), where nonirrigated crop production is the base.


11/21


Figure 1. Federal tax liability

0 10,000 30,000 50,000 70,000 90,000 110,000 130,000 150,000

0

10,000

20,000

30,000

40,000

50,000

Federaltaxesowed(dollars)

Current system Flat tax system

Net farm income (dollars)

were also positive and statistically significant in the FTM. Results also indicatethat the tax liability for beef operations was statistically less than that for crop

farms in the FTM.Use of the squared net farm income term in the regression equations allowedthe models to take a nonlinear form so that the progressivity of both systemscould be evaluated. Progressivity of the tax systems was examined by using theestimated equation to determine the expected Federal tax liability for a range ofnet farm income levels, while holding the other variables constant at their samplemeans. As shown in figure 1, results indicate that as net farm income increases,the tax liability increases at an increasing rate for both tax plans, which impliesthat both the current tax system and the flat tax are progressive. However, the flattax liability is lower when compared to the current system at all income levelsgreater than $6,497.

Winners and Losers

Regression analysis was used to determine the winners and losers caused bya move from the CTM to Armeys FTM. Much like the term fairness, the termwinners and losers may ultimately be considered a value judgment. In this study,winners and losers are measured in terms of the amount of tax paid. Winnersfrom a change in tax systems are defined as those whose tax liability is lower (orafter-tax income is higher) under the flat tax system compared with the currentsystem; losers are defined as those individuals whose tax liability is higher (or

after-tax income is lower) under the flat tax system.The dependent variable estimated in this regression analysis was the differ-

ence in total federal and self-employment tax (or the negative of the differencein after-tax income) between the two tax systems, that is, the tax savings of the


12/21


FTM over the CTM. The difference was determined by subtracting the total taxliability under the FTM from the total tax liability under the CTM. The inde-pendent variables were the debt-to-asset ratio (DTA), net-farm-income-to-total-

assets ratio (NTA), total assets (ASSET), the age of the operator (AGE), the num-ber of dependents (DEPD), and binary variables for the type of farm operation(ICROP, BEEF, DAIRY, HOG, OTHER).

Regression results indicate the net-income-to-total-assets ratio and the debt-to-asset ratio were negative and statistically significant in explaining the differencein total taxes between the two plans (table 5). Thus, increases in profitability orin debt load decrease the tax difference between the current tax system and theflat tax system. Hence, farms with higher debt loads or higher profits will pay

Table 5. Estimated regression coefficients for examining thewinners and losers of a flat tax

Variablea Current System vs. Flat Tax

R-squared 0.1140

RMSE 10,640.57

Intercept 8,458.83*(1445.73)

DTA 6,796.53*(697.71)

NTA 13,169*(1224.58)

ASSET 0.0040*(0.0006)

AGE 97.95*(20.57)

DEPD 195.94(169.97)

ICROP 10.80(789.33)

BEEF 1,343.39*(506.80)

DAIRY 1,270.90(1018.24)

HOG 2,184.45(1368.17)

OTHER 1,726.82(882.27)

Variables that are significant at the 5% level. Standard errors are in parentheses.aThe dependent variable is the savings in total Federal tax and self-employment tax of the Flat Tax

System over the Current Tax System. Independent variables are the debt-to-asset ratio (DTA), net-farm-income-to-total-assets ratio (NTA), total assets in dollars (ASSET), age of the operator (AGE),number of dependents (DEPD), and binary variables for the type of farm operation: irrigated crop,

beef, dairy, hog, and other production (ICROP, BEEF, DAIRY, HOG, OTHER), where nonirrigated cropproduction is the base.


13/21


relatively more tax under a flat tax than lower-leveraged firms. These resultssupport some of the economic reasoning given by proponents and opponents ofa flat tax. Results suggest that a producer who has relatively higher profits would

be better off under a flat tax than under the current graduated tax system becauseof the constant marginal tax rate. However, producers with higher leverage ratioswould be relatively worse off with the flat tax than with the current tax system,under a no-change-in-interest-rate scenario.

Further examination of the difference between the two models (FTM savings)indicates that roughly 63% of the producers would have paid less tax under the20% flat tax than with the current tax system. Based upon the historical informa-tion for the 593 sole proprietors and the tax results generated by the models, ifthe flat tax had been in effect during the 19901994 period, 376 producers wouldhave experienced an average total tax decrease of $100 or more over the 5-year

period, with a mean total tax savings of $5,502 for this group. A total of 199of the sole proprietors would have experienced an average total tax increase of$100 or more during the 5-year period, with a mean total tax increase of $4,199for the group. The final 18 sole proprietors realized either an increase or a de-crease in average total taxes of $100 or less, with a mean total tax of negative$22.98.

Effects on Interest RatesSchuh has argued that a sectoral emphasis has caused neglect of the linkages

of agriculture with the rest of the economy and underestimation (or underempha-sization) of the interrelationships between agriculture and the larger economy(p.810).Thus,thetotaleffectsofa flat taxcannotbe determined solely by changingthe tax rate faced by individual farmers and recalculating their tax liability. A flattaxwould have significant effects on many factors in the economy, includinginter-est rates, and understanding the difference between pretax and after-tax interestrates can provide some insight on the potential interest rate changes expectedunder a flat tax.

A comparison of the average interest rate earned on Moodys Aaa-rated stateand local bonds, which are tax exempt from Federal taxes, and Moodys

Aaa-rated corporate bonds, which are taxable, illustrates how taxes affectinterest rates. Although these bonds are secured by different assets, they areroughly in the same risk and return class. The major difference between the two

bonds is that state and local bonds are Federally tax exempt, while corporatebonds are taxable, implying that corporate bond rates have accounted for the ef-fects of taxes. Historical bond rates are listed in table 6, along with the impliedtax rate, which is the tax rate that equalizes the corporate bond yield with the tax-free state and local bond yield. The state and local bond yield is determined bysubtracting the product of the corporate bond rate and the implied tax rate fromthe corporate bond rate. An investor with the implied tax rate will be indifferent

between investing in a corporate bond and investing in a state and local bond.Table 6 indicates that the average Moodys Aaa state and local bond rate over

the last 20-year period was 7.11%. The average Moodys Aaa corporate bond rateduring the same 20-year period was 9.53%; thus the average implied tax rate


14/21


Table 6. Historical Moodys Aaa bond averages and impliedtax rates

State and Corporate ImpliedYear Local Bonds Bonds Tax Rate

1980 7.85% 11.94% 34.25%1981 10.43 14.17 26.391982 10.88 13.79 21.101983 8.80 12.04 26.911984 9.61 12.71 24.391985 8.60 11.37 24.361986 6.95 9.02 22.951987 7.14 9.38 23.88

1988 7.

36 9.

71 24.

201989 7.00 9.26 24.411990 6.96 9.32 25.321991 6.56 8.77 25.201992 6.09 8.14 25.181993 5.38 7.22 25.481994 5.77 7.97 27.601995 5.80 7.59 23.581996 5.52 7.37 25.101997 5.32 7.27 26.821998 4.93 6.53 24.50

1999 5.

28 7.

05 25.

10Mean 7.11% 9.53% 25.39%

Source: Federal Reserve Bulletin.

was 25.39%. The relationship between the interest rates provides some indicationof the interest rate changes that could occur under a flat tax. Under a flat tax,all interest rates will be on an after-tax basis. A flat tax would eliminate boththe deduction for interest paid on debt and the taxability of interest earned on

savings, thereby placing all interest rates on a tax exempt (after-tax) basis. Theremoval of the deduction for interest paid would likely cause interest rates to dropclose to 25% (Golob). This study examined the possible consequences of interestrate changes by considering three possible interest rate scenarios: (1) no changein pretax rates (an increase of 33% in after-tax rates), (2) a 25% decrease in pretaxrates (no change in after-tax rates), and (3) a 12.5% decrease in pretax interest rates(an increase of 17% in after-tax rates).

Regression analysis wasused to examine theequityandthetotal taxliability, netof alternative interest savings assumptions, of the flat tax system under the threeinterest rate scenarios, including any interest savings resulting from decreases inpretax interest rates. Table 3 provides the regression results for the current taxsystem and for the flat tax system under the three interest rate scenarios.

Results indicate that net farm income as a percentage of total assets was positiveand significant in the three interest rate scenarios, implying that the tax liability,


15/21


net of interest savings, increases as profitability increases. Results also show thatthe coefficient on total assets was positive and significant when pretax interestrates remain constant or drop 12.5%, suggesting that as farm size grows, the tax

liability increases. However, the magnitude of this parameter estimate decreasesas interest rates fall, and it is not significantly different from zero at a 25% interestrate drop. The debt-to-asset ratio was positive and significant when the pretax in-terest rate did not change, but was negative and significant when rates declined by12.5% and 25%. These results suggest that highly leveraged farms will pay highertaxes if pretax interest rates remain constant under a flat tax system. However,if interest rates decline by more than 12.5%, then farmers with relatively higherdebt-to-asset ratios will have higher after-tax income than under the current taxsystem.

An examination of the parameter estimates of both tax models indicates that the

movement from the current tax system to a flat tax decreases the effect of the net-income-to-total-assets ratio on total taxes by approximately 45%. As interest ratesdecline, the effect remains fairly stable, implying that the effect of the net-income-to-total-assets ratio on total taxes changes very little as interest rates change underthe flat tax. The effect of total assets on total tax liability decreases by 41% whenmoving from the current system to the flat tax system. The parameter estimatefor total assets decreases another 45% as interest rates decline by 12.5%, implyinga change in total assets is associated with a smaller change in total taxes as pretaxinterest rates decline. The effect of a change in the debt-to-asset ratio on the totaltax liability changes substantially when switching from the current tax system to

a flat tax if interest rates change under a flat tax system. When switching from thecurrent system to the flat tax, the effect of a change in the debt-to-asset ratio morethan doubles as it changes from a negative effect to a positive effect. As interestrates decline under the flat tax system, the debt-to-asset ratio becomes inverselyrelated to total taxes, net of interest savings, with the effect of a change in the debt-to-asset ratio when pretax interest rates drop 12.5% being very close to the effectunder the current system. When pretax interest rates decline by 25%, the mag-nitude of the negative parameter estimate more than triples from its value at a12.5% decrease in pretax interest rates. This result indicates that as pretax inter-est rates decline, the effect of an increase in the debt-to-asset ratio causes totaltaxes to decline by greater and greater amounts. With a decline in interest rates

of 12.5%, 77% of producers would have paid lower taxes under the 20% flat tax.If rates fell by 25%, roughly 90% of this set of producers would have paid less intaxes.

Effects on Capital InvestmentA flat tax may significantly impact land and equipment investment patterns.

Changes in investment patterns may occur because of the ability to fully expensecapital assets in the year they were purchased, because assets are fully taxed

when sold, or because of the removal of the deduction for interest. A flat taxcould also impact land prices, especially under alternative interest rate scenarios.This section of this paper examines the probable effects of a flat tax on capitalinvestment.


16/21


Land Investment

Theeffectsofa flat taxon land investments were examined under thecurrent taxsystemandunder theflat taxsystem. Land purchasesunder thecurrent taxsystem

wereevaluatedusingbotha18%(15%federaland3%state)anda34%(28%federaland 6% state) marginal tax rate, with a pretax interest rate of 9%, a 3% inflationrate, and a 30-year holding period. The land was assumed to have a $35 per acrepretax return, which was an average cash rent for Kansas (U.S. Department ofAgriculture, 1996a). Property tax expenses were assumed to be 0.75%, which wasthe average rate in the United States during 1994 (U.S. Department of Agriculture,1996b). Land purchases for the flat tax plan were evaluated using a 20% flattax and the three previously discussed interest rate scenarios. Additionally, landpurchases were fully expensed in year 0 and the full sale price was taxed at 20%in year 30. The same inflation rate, holding period, and $35 return per acre were

used for the flat tax evaluation. Finally, all land investors were assumed active,and therefore, were treated equally under the flat tax scenario. Previous work byFeatherstone in deriving a maximum bid model for agricultural land under a flattax system indicated that changes in land values under a flat tax scenario criticallydepend on how pretax interest rates change.

Table 7 presents the results for the land investment analysis. Results indicate thebreak-even or maximum bid price under the current tax system was $611 per acre,using the 34% marginal tax rate (28% Federal) assumption. With a 18% marginaltax rate (15% Federal), the break-even land price is $569 per acre, roughly a 7%reduction. Because of the change in tax rates, the nominal after-tax cost of capital

increased from 5.94% to 7.38%, causing land prices to decrease by $42 per acre.Any time income tax rates decrease and pretax rates remain constant, the cost of

Table 7. Capital investment scenarios under the current and flattax systems

Land Investment

Break-Even Nominal After-TaxTax System, Interest Rate Assumption Land Price Interest Rate

Current 15% Federal income tax $569 7.38%Current 28% Federal income tax $611 5.94%20% Flat tax, no change in pretax interest rates $532 9.00%20% Flat tax, 12.5% decrease in pretax rates $638 7.875%20% Flat tax, 25% decrease in pretax rates $797 6.75%

Equipment Investment

Tax System, Interest Rate Assumption After-Tax CRCa Pretax CRC

Current 15% Federal tax bracket $2,283 $2,685Current 28% Federal tax bracket $1,778 $2,47020% flat tax, no change in pretax interest rates $2,345 $2,931

20% flat tax, 12.5% decrease in pretax rates $2,106 $2,63220% flat tax, 25% decrease in pretax rates $1,875 $2,343

aCRC is captial recovery cost.


17/21


debt financing is higher for the individual in the lower tax bracket, thus reducingthe value of capital assets. These results illustrate inequities that are built into agraduated tax code.

Under a 20% flat tax system with no change in pretax interest rates (a 33.3%increase in the after-tax rate), the break-even land price falls to $532 per acre. Thisis a $79 or 12.9% decrease in land prices below those of the current 34% tax bracketand is the result of a higher after-tax interest rate. Under the flat tax proposal, theafter-tax interest rate is equal to the pretax interest rate because interest paid isno longer deductible. An increase in the after-tax interest rate increases the costof borrowing, thus pushing the price of land down.

If pretax interest rates decline by 12.5%, effectively making the nominal after-tax interest rate equal to 7.875%, then the break-even land price is $638 per acre,4.4% higher than that of the current 34% tax bracket. Increases in land prices

become even more pronounced if the pretax interest rate falls by 25%. If theinterest rate declines to a nominal after-tax rate of 6.75%, then the break-evenland price becomes $797 per acre, that is, an increase in land prices of 30.4% for aproducer currently in the 34% tax bracket.

Equipment Investment

The flat tax plan will not only affect land prices, it will also have an effect onequipment investment decisions. To examine the flat taxs effect on equipmentinvestment, the purchase of an irrigation sprinkler system was evaluated using

information obtained from the Kansas State Universitys Kansas Farm ManagementMarketing Handbook.The assumptions used to evaluate this investment under the current tax code

include a purchase cost of $36,450 for the sprinkler system,6 a 20-year asset life,and a 20% salvage value for the system at the end of 20 years. Additionally,a seven-year Modified Accelerated Cost Recovery System (MACRS) was used,with a $0 terminal value for depreciation. The sprinkler system investment wasevaluatedusing 15%and28%federal marginal tax rates, with a 9% nominal pretaxinterest rate and a 3% inflation rate. The flat tax system was evaluated using a 20%flat tax rate, the three interest rate scenarios previously examined, and the samesprinkler cost, inflation rate, life of the investment, and salvage value as used for

the current tax system. The flat tax scenarios did not include depreciation sincethe Armey flat tax plan eliminates this deduction. Additionally, the sprinkler wasfully expensed in year 0 under the flat tax, and the sale price was fully taxed whenthe sprinkler was sold in year 20.

Table 7 reports the results of the equipment investment analysis (for a completediscussion of the methods, see Elffner). Under the current tax system, using a 28%marginal tax rate, the after-tax capital recovery charge for the sprinkler system is$1,778 per year. This result implies that the sprinkler investment would cost theproducer $1,778 after taxes per year to own, given the above assumptions. The$1,778 after-tax capital recovery charge is equivalent to a $2,470 pretax capital

recovery charge. In other words, $2,470 in pretax income needs to be generatedper year to pay for the sprinkler system. Using a 15% marginal tax rate, the after-tax capital recovery charge increases to $2,283 per year. The additional $505 rise incost is the result of an increase in the nominal after-tax cost of capital. The pretax


18/21


difference of the marginal tax brackets is $215. A farmer in the lower tax bracketstill needs to generate more income in order to pay for the equipment.

Evaluation of the same sprinkler investment using a 20% flat tax and no change

in the pretax interest rate results in an after-tax capital recovery charge of $2,345,suggesting that the investment will cost the producer $567 more after taxes peryear to own the sprinkler under a flat tax system than under the current marginaltax rate of 28%. The pretax capital recovery charge of owning the sprinkler in-creases by $461 per year to $2,931 for a 20% flat tax relative to the current marginaltax rate of 28%. The producer would also pay more on both an after-tax and apretax basis under a flat tax than under the current 15% marginal tax bracket ifpretax interest rates remain constant.

If pretax interest rates fall by 12.5%, then under the flat tax, the after-tax capitalrecovery charge is $2,106 for the sprinkler investment, effectively raising after-

tax expenses by $328 per year for those producers in the current 28% tax bracketand decreasing the after-tax expense by $177 per year for those producers in thecurrent 15% tax bracket. These results suggest that producers currently in the 15%tax bracket would see a benefitinmovingtoa flat tax system relative to remainingin the current system. Results are the same for the pretax capital recovery costs ofthe two tax systems. The sprinkler would cost producers in the 28% marginal tax

bracket $162 more pretax per year, and it would cost the producer in the 15% taxbracket $53 less per year relative to the costs in a 20% flat tax system.

When pretax interest rates decline by 25%, to 6.75%, the after-tax capital re-covery charge for the sprinkler becomes $1,875 using a 20% flat tax. Under this

scenario, the current 28% tax system still saves the producer $97 per year in after-tax capital recovery charges. The flat tax benefits the producer currently in the15% marginal tax rate on both an after-tax and a pretax basis.

Overall, results of the equipment investment analysis indicate that producerscurrently operating in the 15% tax bracket would invest more under a flat taxif the pretax interest rate declines by 12.5% or more. Producers in the 15% tax

bracket face a higher after-tax capital recovery charge under the flat tax thanunder the current system if pretax interest rates do not change or decline by atleast 12.5%, suggesting that producers under these circumstances would investin less capital equipment. When pretax interest rates drop by 12.5% or more, theafter-tax capital recovery charge falls below what it is for the current 15% tax

bracket, encouraging producers to invest in more capital equipment. Producersin the current 28% tax bracket face higher after-tax capital recovery charges undera flat tax unless interest rates decline by roughly 25%. This higher cost will leadproducers to invest in less capital equipment under a flat tax system than underthe current system. For producers in the current 28% tax bracket, a switch fromthe current tax system to a flat tax system, even with a decline in pretax interestrates up to nearly 25%, causes capital investment to decline primarily becauseof the removal of the interest deduction and because assets are fully taxed whensold.7

ConclusionsThis study evaluated the effect that a flat tax system would have on agricul-

ture by comparing the tax liability under the current federal system to the tax


19/21


liability under a flat tax system. The study examined the shift in the tax bur-den on Kansas farmers occurring from a switch in tax systems, and it evaluatedthe equity, the progressivity, and the winners and losers of a flat tax system.

The study also assessed the impact of the flat tax on interest rates and capitalinvestment.

Results indicate that the flat tax is progressive since it increased the federal taxliability at an increasing rate as farm profitability and farm size increased. Resultsalso indicate that the average federal tax paid by farm families would drop from$10,323 to $8,181, or approximately 21%, under the flat tax proposal and that 63%of the producers would benefitin the form of lower taxesfrom a movementto the flat tax system. Under the flat tax, larger farms and more profitable farmswould be relatively better off, while farms with higher leverage ratios would berelatively worse off. If interest rates fall, as would be expected in order for real

after-tax rates to remain nearly constant, the percentage of producers benefittingfroma20% flat tax increases to 90% as the decline in interest rates approaches 25%.

The study examined the effects of a flat tax on interest rates and capital in-vestment by considering three interest rate scenarios: (1) no change, (2) a 12.5%decline, and (3) a 25% decline in pretax interest rates. Results indicate that landvalues decline by 12.9% if pretax interest rates remain unchanged. Land valuesincrease by 4.4% under a 12.5% decline in pretax interest rates, and land valuesincrease by 30.4% in response to a 25% decline in pretax rates. Results also sug-gest that producers in the 28% marginal tax bracket reduce their investment inequipment, on an after-tax basis, in response to the three interest rate scenarios.

Producers in the 15% tax bracket also decrease investment unless pretax interestrates decline by 12.5% or more; these producers will increase investment if pretaxrates fall by at least 12.5%.

Finally, economic analysis of fundamental tax reform is not complete withoutfull consideration of the macroeconomic consequences of that tax reform. Simplycalculating tax liability changes and surmising changes that may occur withouta consistent analysis can lead to misleading conclusions. Previous studies havesuggested that land prices will increase due to the ability to expense items whileinterest rates will remain unchanged. These arguments are not internally consis-tent when one looks at capital asset pricing models. If businesses lose the abilityto expense interest, interest rates will readjust to a new equilibrium or capital

asset values will fall dramatically. With the downward adjustment in interestrates, those producers who currently have debt will benefit, therefore mitigat-ing the adverse effects from the loss of that interest deduction. When evaluatingfundamental tax reform, agricultural economists would be wise to rememberSchuhs warning that a sectoral emphasis has caused neglect of the linkages ofagriculture with the rest of the economy and underestimation (or underempha-sization) of the interrelationships between agriculture and the larger economy(p. 810).

AcknowledgmentsHelpful comments from Terry Kastens and three anonymous journal reviewers are greatly appre-

ciated.


20/21


Endnotes1 This was a modified version of H.R. 2060 introduced in the 104th Congress (Armey, 1995). The tax

rate was modified from 20% to 19%.2

The 19% flat tax is argued by proponents as the implied tax rate that results in tax-revenue neu-trality. We have not empirically established the actual implied tax rate that results in tax-revenueneutrality; doing so is beyond the scope of this study. We have used a 20% flat tax rate. Additionally,we ignore the decline to a 17% flat tax rate and only examine a 20% rate in this study.

3 Taxes were calculated using the tax law provisions corresponding with the years of data used inthe study, 19901994.

4 Because depreciation was calculated on a management (market) basis rather than a tax basis, theadjusted accrual income is likely above what would be in place if depreciation was calculated on a tax

basis. Thus, the current tax liability is overstated. However, contingent tax liabilities arising from theoverdepreciation of assets will offset any tax differences except for a time value of money adjustment.

5 It should be noted that this income is for taxation purposes. This income is not the same as nettaxable farm income as under the current tax model. Neither measure is equivalent to net farm incomethat is often used as a measure of sectorial health. However, under a flat tax regime, the agriculturaleconomics profession will need to define a measure of net farm income. We argue that the income

measure used for taxation does not necessarily constitute the well-being of the farm sector especiallyunder a flat tax. We propose that net farm income be calculated as it is currently with the exception thatdepreciation should be determined on a management (market) basis rather than use tax depreciation.Because the Kansas Farm Management Associations already use management depreciation in thecalculation of net farm income, the net farm income used in this study is unaffected by a change intax regime, although this would not be the case if tax depreciation was used to determine net farmincome. Because net farm income is a pretax measure of the well-being of the sector, it is desirablethat net farm income would be unaffected by tax policy.

6 It is assumed in the analysis that the capital investment price will be unaffected by the tax policychange. Aggregate demand and supply could change the price of the investment (the center pivotin this case). In addition, changes in investment policy due to tax effects will also result in feedbackeffects.

7 Under a 25% reduction in interest rate scenario, it becomes unclear whether the aggregate demandfor capital investment will increase or decrease in that those producers in the lower tax bracket would

demand more capital and those in the higher bracket would demand less. Therefore, the estimation offeedback effects becomes difficult. Because the overall economy will ultimately pay roughly the sametax under a flat tax system and the current tax system, substantial feedback effects would be unlikely.Homma, Shigeno, and Fukushige found that when Japan shifted to a consumption tax in April 1989,a one-time 1.1% increase in consumer prices occurred. Thus, it can be deduced from their study thatthe feedback effects (major changes in prices) are not large. To fully examine this issue, a computablegeneral equilibrium approach would be needed.

ReferencesAdams, R.D. and N.E. Harl. The Flat Tax: Some Effects in Agriculture. Tax Notes, June 5, 1995,

pp. 13781379.

Armey, R. H. R. 1040. As Introduced in the House of Representatives, March 9, 1999.Armey, R. H. R. 2060. As Introduced in the House of Representatives, July 19, 1995.Carman, H.F. U.S. Agricultural Response to Income Taxation. Ames, IA: Iowa State University Press, 1997.Carman, H.F. and M. Boehlje. Agricultures Stake in the Federal Income Tax Reform. Choices (Third

Quarter, 1996):47.Due, J.F. and A.F. Friedlaender. Government Finance Economics in the Public Sector. Sixth Edition.

Homewood, IL: Richard D. Irwin, Inc., 1977.Duncan, M., W.W. Koo, and R.D. Taylor. Overhauling the Federal Tax System. Choices (Second

Quarter 1997):2831.Elffner, D.D. The Impact of Proposed Federal Tax Changes on Kansas Agriculture , MS thesis, Kansas State

University, Manhattan, KS, 1996.Featherstone, A.M. Taxes and the Market for Farmland. Proceedings from the Competition for Land

Seminar. Center for Agriculture in the Environment, De Kalb, IL, February 1997, pp. 321.Federal Reserve Bulletin, Various Issues, 19801999.

Fellows, J.A. A Conceptual Analysis of the Flat Tax. The CPA Journal (July 1995):1822.Friedman, M. Free to Choose. New York: Harcourt Brace Jovanovich, 1980.Golob, J.E. How Would Tax Reform Affect Financial Matters? Federal Reserve Bank of Kansas City,

Economic Review (Fourth Quarter, 1995):1939.


21/21


Hall, R.E. and A. Rabushka. The Flat Tax. Stanford: Hoover Institution Press, 1985.Homma, M., Y. Shigeno, and M. Fukushige. The Effect of the Consumption Tax on the Consumer

PriceEstimation Using a Time Series Model. Econ. Rev. 46(July 1995):193215.Kansas State University Department of Agricultural Economics. K-State Research and Extension.

Kansas Farm Management Marketing Handbook, KSU Farm Management Guide MF-836.National Commission on Economic Growth and Tax Reform. Unleashing Americas Potential.

Washington, DC, January 1996.Richardson, J.W., E.G. Smith, R. Knutson, A.W. Gray, S.L. Klose, and C.J. Nixon. Economic Impacts of

a Flat Tax on Representative Crop, Livestock, and Dairy Farms: Revised. College Station, Texas: TexasA&M University, AFPC Working Paper 96-3R, March 1996.

Schuh, G.E. The New Macroeconomics of Agriculture. Amer. J. Agr. Econ. 58(December 1976):802811.

Slemrod, J. and J. Bakija. Taxing Ourselves: A Citizens Guide to the Great Debate Over Tax Reform .Cambridge: The MIT Press, 1996.

U.S. Department of Agriculture. Agricultural Cash Rents in 1995, Updates on Agricultural Resourcesand Environmental Indicators, Number 1, March 1996a.

U.S. Department of Agriculture. Agricultural Real Estate Taxes, Updates on Agricultural Resources

and Environmental Indicators, Number 11, October 1996b.

Fed Flat Tax

Documents

Transcript of Fed Flat Tax