Treasury Study of Flat Tax Plan Was Strictly Business

To the Editor:

The article "GOP Flat Tax Idea Prompts Creative Analysis by Treasury" (Jan. 12, page 22) is inaccurate and misleading.

The Treasury carefully analyzed the effects of replacing the current individual and corporate income taxes with a flat tax of the type proposed by Rep. (Richard) K. Armey.

Based on publicly available information about the proposal, Treasury estimated that the flat rate tax would reduce revenue by $244 billion annually in the long run and, if financed by higher rates or a lower standard deduction, would redistribute the tax burden from high income to low income families. The Treasury study explicitly listed the assumptions used in calculating the tax base under the flat tax.

In response, Rep. Armey's staff clarified some provisions of the Armey flat tax proposal, including provisions that would deny businesses deductions for state and local taxes and for the employer portion of payroll taxes.

Based on these clarifications supplied by Rep. Armey's staff. Treasury now estimates the revenue loss at $186 billion annually. The estimated distributional effects are virtually unchanged from those in the Treasury paper.

We believe the Treasury paper makes an important contribution to the debate on flat tax proposals and would be happy to share a copy with any interested readers. We hope the tax reform debate focuses on the effects and not on unsubstantiated allegations about political motivations. Eric J. Toder Deputy assistant secretary, tax analysis Department of the Treasury