What Kind of Tax Structure?: What Kind of Tax Structure?
The other controversial item is the progressivity of the tax structure. A flat tax is more efficient. But many believe it is also unfair. Yet the fact of the matter is that when social security taxes are included at the low end of the income scale, and exemptions and loopholes are included at the high end, the current system is very close to a flat tax. However, there are obviously too many vested interests who favor keeping the current structure. Automatic and Discretionary Stabilizers: Automatic and Discretionary Stabilizers Throughout this book we have stressed the importance of the fundamental identity I = S, and shown that recessions start when I falls below S on an ex ante basis. When that happens, much of the adjustment occurs through a decline in government saving. As a general rule, every 1% decline in the growth rate boosts the Federal deficit ratio by about ½%. Automatic Stabilizers, Slide 2: Automatic Stabilizers, Slide 2 Thus, for example, a drop in real growth from 4% to
