Yesterday Fred Thompson outlined the way he'd like to change the tax system. Major points (according to the AP):
- Keep the present tax cuts which are due to expire in 2010
- Eliminate the estate tax
- Eventually eliminate the AMT
- Give taxpayers the option to file under the present system or a flat tax. The "flat tax" would have a high standard deduction ($12.5K for singles, $25K for couples), and a personal exemption of $3k per person (so a family of 4 would pay no tax on their first $39K of income). Cap gains and dividends would be taxed at 15%. All other income up to $50K (singles) $100k (couples) would be taxed at 10%. All income above this level would be taxed at 25%. There would be no other tax credits or deductions for those who choose to use the simplified flat-rate computation.
Opinions form the crowd? Okay, okay, I'll start:
CON:
- Another whole set of tax computations? The only way an individual will know which system is most beneficial is to crunch their numbers for both systems. In addition to the folly of a "simplification" that really causes more pain for everyone, it will also not enhance the citizenry's faith in the tax code, since everyone will know that the tax loopholes are there for those with the legal staff and CPAs needed to ferret them out.
- The "flat tax" still requires that all taxpayers figure out their income. For most people, figuring out that number is the hardest part of doing their taxes. So, there's really not much reduction in taxpayer paperwork.
- The government is still taxing (i.e. disincentivizing) productivity. Is productivity what we want to discourage as a matter of national policy?
- It leaves the income taxation system intact, and the new "flat tax" will likely soon become the same morass of complex exemptions and rules that we have now. Each year special interests will fight to include more "tweaks" to the flat tax.
PRO:
- A voluntary, incremental change like this is more likely to be enacted than a more radical overhaul (like a National Retail Sales Tax).
- A parallel simple flat tax might be a mechanism for developing popular support for scrapping the other "conventional" tax code. It is possible the public will come to see the present code as the tool used by the wealthy and the "insiders" to get away with paying less than their fair share, and it is possible that this could lead to pressure to do away with the conventional system.
Also, note that, at least as AP has outlined it, cap gains and dividends would be taxed at a higher rate (15%) than earned income (10%) for the first $50K/$100K. Interesting. At least the`dividend/cap gains rate isn't higher than it is right now.
- Keep the present tax cuts which are due to expire in 2010
- Eliminate the estate tax
- Eventually eliminate the AMT
- Give taxpayers the option to file under the present system or a flat tax. The "flat tax" would have a high standard deduction ($12.5K for singles, $25K for couples), and a personal exemption of $3k per person (so a family of 4 would pay no tax on their first $39K of income). Cap gains and dividends would be taxed at 15%. All other income up to $50K (singles) $100k (couples) would be taxed at 10%. All income above this level would be taxed at 25%. There would be no other tax credits or deductions for those who choose to use the simplified flat-rate computation.
Opinions form the crowd? Okay, okay, I'll start:
CON:
- Another whole set of tax computations? The only way an individual will know which system is most beneficial is to crunch their numbers for both systems. In addition to the folly of a "simplification" that really causes more pain for everyone, it will also not enhance the citizenry's faith in the tax code, since everyone will know that the tax loopholes are there for those with the legal staff and CPAs needed to ferret them out.
- The "flat tax" still requires that all taxpayers figure out their income. For most people, figuring out that number is the hardest part of doing their taxes. So, there's really not much reduction in taxpayer paperwork.
- The government is still taxing (i.e. disincentivizing) productivity. Is productivity what we want to discourage as a matter of national policy?
- It leaves the income taxation system intact, and the new "flat tax" will likely soon become the same morass of complex exemptions and rules that we have now. Each year special interests will fight to include more "tweaks" to the flat tax.
PRO:
- A voluntary, incremental change like this is more likely to be enacted than a more radical overhaul (like a National Retail Sales Tax).
- A parallel simple flat tax might be a mechanism for developing popular support for scrapping the other "conventional" tax code. It is possible the public will come to see the present code as the tool used by the wealthy and the "insiders" to get away with paying less than their fair share, and it is possible that this could lead to pressure to do away with the conventional system.
Also, note that, at least as AP has outlined it, cap gains and dividends would be taxed at a higher rate (15%) than earned income (10%) for the first $50K/$100K. Interesting. At least the`dividend/cap gains rate isn't higher than it is right now.