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1 Arthur P. Hall, How Will Alternative Tax Reform Plans Affect the Jones Family 1 (1995)

handle is hein.taxfoundation/srejxz0001 and id is 1 raw text is: FOUNDAION
May 1995
Number49

Hlo  Wil   ci ~iatn  a Refrni
Plans Afct th e   s Famnily?

Three alternative tax rfor)rm plans lhve
becn proposed to rcplacc the ctirr-ctit inicon
taxX S stim:
* the 1iat taX introoltiCCud b) Rcp. IDiCk
AncN (R-Tcixas) with Richaud Shelby (R-Ala.)
co-sponsoring the plan in the Senate
(presidenttial candidate Sen. Arlcn Specter is
otlurilig ai sililar plan):
Stile U I tlinitcd Sav ligs Allow anucc (USA)
Tax System sponsorcd by Sncators i)ctc
Domcnici (R-N.M.) aiicl Sam Nun (l)-(a.);

Figure /
Estimated 7ax Liabilities for the Joneses Under Current Sjystein and
Alternative Tax Plans

$6,000 -
$5,000 -
$4,000
$3,000
$2,000
$1,000

$5,594

$4,286

$3,113

$2.322

Current
Law

Flat Tax

USA
Tax
System

National
Sales
Tnx

5(OLIrIC T:1x F oundaition.

• and a national rctai[ stlus tax ad vocalted
by presidential candidate Sen. Richard lugar
(R-Ind.).
TO ilhistratc th different tax rIles and
efucts for individualKs nder thu alternative
plans, th lax I otndatioil assistud the (able
News Nctwork (CNN) in CaluIlating an actial
Ianilxy's tax burcl1n - Bo and SusIn Jones* of
I icsscc - tmindcr uach of the refornm plans
and coni)paring these 1uIrdCns With thu burden
tLICI tihc Ctit''Clnt ilnCOlm]C tax S VStCll.
The reform plins hav idcnticll goals.
TI cy sock to elimiinate the biased tax
tualcmunt of saving and investment and to
simplify th process of complying with (and
administering) the federal tax sstclm.
I lowcvr, the 11t tax and the I SA Tkax Sy stem
differ in the approach they take to relieve the
tax hblrden oil saviig and inv'stmnt.
13ttt simplv, the filat tax clcrtcs for
idiv idual txpa yurs what is in uffc an
unlinitCl, aCk-elndud individual retiremeint
account (IRA). That is, idixiduials' wagu and
salary income is taxed when it is ealrneud, while
any interest, dividend, and capital gains
income that rstIlts from either old or nuew
saxvings is Iexver subject to tax It thu individual
lvel. AId there ar iio ta1x COlsC(tjlCllCCs or
penalties assoc iated with drawing down oincus
savings ofr alturing the composition of a
savings portfolio.
I Jn1duT the tI SA T'tx, individuals 1)tlSt total
their wages and sahrics (iand also amy other
forms of i ncomle), Int they trc then alloxcd to
dudiuct their nuw saxving fotr the year In eftct,
then, the I SA lax System operates like an
l 7heir last naule has beell cnItged ill ttis
re/)orl to e/nsure privaty.

B1'41 1woi P. 'll41I , P1t ).
'elliol I:l.Oll llst
7 '/.v Iolillhdlioll

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