RSS 2.0 FeedThe Taxpayer Choice Act
by Doug MataconisRobert Novak writes today about a sweeping tax reform package being proposed by a trio of Republican Congressman:
[R]eform-minded conservative Republicans this week introduce the most sweeping tax plan since Jack Kemp’s three decades ago. It would establish a radically simplified, flatter tax for an estimated 90 percent to 95 percent of all income tax filers.
Those taxpayers presumably would accept this offer: give up all your current deductions, and your annual earnings up to $100,000 would be taxed at 10 percent, with a 25 percent rate on everything above that. But that is not all. The bill would repeal the hated Alternative Minimum Tax (AMT), giving up $840 billion in revenue over the next 10 years. Government would have to get leaner.
(…)
Under the plan, taxpayers could either continue under the present tax code or accept the simpler system. In place of deductions and credits, every taxpayer would get a generous standard exemption ($39,000 for a family of four). Nearly everybody presumably would take this opportunity to escape the scrutiny and invasiveness of the Internal Revenue Service. The taxpayer could change back only once in a lifetime (with an exception for such life-changing events as death, marriage or divorce).
This system may avoid the fate of flat-tax proposals, encountering the wrath of the “tax expenditure lobby” seeking to retain deductions for home mortgages, charitable contributions and state income tax payments. Those exclusions make a 25 percent tax rate impossible and undermine the plan, but the Taxpayer Choice Act puts the decision in the hands of the individual whether to retain them.
The plan also would make permanent President Bush’s capital gains and dividends tax cuts.
It is, as Novak notes, a daring proposal, and one that is worthy of serious consideration. One of the most insidious aspects of the current tax system is the extent to which it has grown far beyond it’s stated purpose of raising revenue to operate the government and mutated into a back-door social welfare program. The real estate and mortgage industries, along with homeowners, receive a subsidy in the from the home mortgage interest deduction. State and local governments get to hide the true cost of property taxes thanks to the property tax deduction. And countless other special interests have gotten deductions, exemptions, and exclusions that effectively turn the tax system into just another part of the welfare state.
Most importantly, though, rather than simply eliminating those deductions and tax benefits, the Taxpayer Choice Act would keep them in place and leave to the individual taxpayer the choice between the old system with all the deductions, and the new system with the simplified flat tax.
I don’t know about you, but I’m pretty sure which option I’d pick.
As Novak notes, though, the Taxpayer Choice Act is also important because it would require the GOP to face up to reality:
Ryan, Hensarling and Campbell pose a gut check for the Republican Party. Is it willing to part with a rapacious tax without replacing the revenue and offer taxpayers a bold choice? In 1978, the Republican National Committee under Chairman Bill Brock endorsed Kemp-Roth. To take a similar daring step today, the party would have to divorce itself from the Bush administration’s tutelage and embark on a course of tax simplification and spending discipline
Unfortunately, it seems very unlikely that such a change will occur anytime soon.
I think that this idea, while meritorious, has some serious problems, the most important of which is that it is not tax-neutral. We should debate the form of our tax system separately from its magnitude. I agree that we need to tackle both problems, changing the form to simplify the system, and reducing the magnitude, but to attempt to solve both problems together is too much. We should go one step at a time.
I have long favored a completely different kind of tax, which I’ll call a “footprint” tax. It is applied to commodities based on their net negative impact on the rest of the population. In other words, if you want to burn some gasoline, then you have to pay a tax based on the damage that you do to everybody else’s world.
I also believe that some progressiveness in the tax system is quite appropriate, both to fairly represent the differential benefits of government on rich and poor, and to reduce the Gini Index.
Comment by Chepe Noyon — October 11, 2007 @ 7:41 pmChepe,
That is the beauty of this plan, that is isn’t tax neutral. It takes $ 840 billion dollars out of the hands of the looters, puts it back in the hands of the people it belongs to, and forces the looters to find a way to cut the already bloated federal budget.
Sounds like a winner to me.
Comment by Doug Mataconis — October 11, 2007 @ 9:23 pmIf we want to lower taxes, then first we have to cut spending. If we want to change the form of the tax, then we can have a proposal that changes the form of the tax. By attempting to tackle both problems in one blow, it merely gets twice the opposition.
I favor a balanced budget. If we want to lower taxes, then we must also reduce spending. If all we do is cut taxes, then we just get deficit spending, which passes the problem on to future generations. So I would tackle spending first; once we get the deficit under control, then we can lower taxes. I’d start with military spending; we can easily cut a couple hundred billion out of our military spending without compromising security. All we’d lose is the ability to invade small countries on a whim.
Comment by Chepe Noyon — October 11, 2007 @ 9:35 pmChepe,
What would you cut?
Comment by Kevin — October 11, 2007 @ 9:54 pmDoug,
One problem is that the Congress is required by law to consider only revenue-neutral tax reform bills. And they definitely follow this law.
I’ve not studied the proposal in depth, but it might be the case that the reform is currently revenue-neutral, as the AMT is not expected to start dinging a significant number of taxpayers until next year.
Comment by Brian T. Traylor — October 11, 2007 @ 11:19 pmKevin, I’d cut just about everything, but most especially stuff that’s only important for big wars: main battle tanks, heavy artillery, battleships. And I’d finish for good the old standard of being able to fight two wars simultaneously. Big wars just aren’t a viable policy option any more.
Comment by Chepe Noyon — October 12, 2007 @ 10:13 amTHE INFRASTRUCTURE CRUMBLES
The infrastructure crumbles
While I must service debt–
The situation humbles,
But I´ve no answer yet.
Meanwhile the dollars that I pay
In tax rain havoc in Iraq,
In their deployment with no say
Unable yet to take them back.
Taxes require a high percent
While I keep nearly threadbare poor,
Meanwhile largesse of government
Has plenty to expend on war.
The infrastructure crumbles,
Who knows what else is yet
To come–stock market tumbles,
Deflation? Take your bet.
The bombs are falling in Iraq
And in Afghanistan today,
While who knows where discharges flak
In secret places none will say?
Meanwhile one hardly makes the rent,
Though treading water far from shore:
One works to serve the government
So that it may conduct the war.
The infrastructure crumbles,
While people curse–upset–
The bureaucratic bumbles
Which can´t do nothing yet.
The infrastructure of Iraq
We have destroyed, but yet we may
Not fix our own, so how, alack,
Might we make reparations, eh?
I pay my taxes, one red cent
Not with representation, or
A say in how the government
Disperses it, e.g. on war.
The infrastructure crumbles,
Comment by I.M. Small — October 12, 2007 @ 10:43 amThe hungry belly rumbles,
The government yet fumbles
And bumbles its attack;
The population grumbles,
While politicians´ mumbles
Do little as war stumbles
On daily in Iraq.
Chepe
“By attempting to tackle both problems in one blow, it merely gets twice the opposition.”
That is untrue. You actually have, for the most part, the same people opposing both problems. You might as well have only one battle and concetrate your resources to fight that battle. If you break it into two battles it will cost you twice as much and take twice as long.
Comment by TerryP — October 14, 2007 @ 8:35 pm