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. Some households save very little and will be ill-prepared to retire. Low saving has both personal and national economic consequences. private saving-that is, saving by businesses and families-has averaged 4.9% since 1990. After averaging 8% of gross domestic product from 1950 to 1980, U.S.

Alas, while the new system would certainly be simpler (if it lasted), proponents of the flat tax are likely to be disappointed by the impact on saving.Ĭoncern about saving and growth is well-founded.

Proponents claim the flat tax would be simpler than the current tax system, and would generate dramatic increases in saving and economic growth.

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. The notion of a “flat tax” has attracted increased attention and support in recent months.

Pros and cons of flat tax