Now suppose the United States were to convert its tax system from an income tax to a flat tax. For individuals, there would be no itemized deductions allowed, instead they would have a high standard exemption (taxpayers below the exemption would not have to file). Tax exemptions would be in place for dividends and interest income. Businesses could deduct all expenditures on salaries and immediately expense asset acquisition costs.

The student discussion will focus on what effect if any such a tax system would eliminate incentives to shift activities:

From one period to the next?

From one type to another?

From one pocket to another pocket?

Why or why not?

Do you believe a flat tax with no itemized deductions is politically feasible for the United States? Why or why not? m