As pushed by Steve Forbes, Richard Armey, the Kemp Commission and others, the flat tax would give each family a large exemption, tax all wage income above that level at a single, low rate and would exempt interest, dividends and capital gains from all household-level taxes. Proponents claim the flat tax would be simpler than the current tax system, and would generate dramatic increases in saving and economic growth. Concern about saving and growth is well-founded.
Low saving has both personal and national economic consequences.
Some households save very little and will be ill-prepared to retire. A nation with a low saving rate will have few resources available for productive private investment, or will have to borrow from abroad to finance investment. Higher saving could help support people in retirement, strengthen economic growth and raise living standards for all. Some forms of personal saving are taxed twice, once when earned and again when the saving produces investment income. Corporate income is taxed at the corporate level and again when it is received by shareholders.