Newspaper article St Louis Post-Dispatch (MO)

The 25 Percent Solution for Simplifying the Tax System

Newspaper article St Louis Post-Dispatch (MO)

The 25 Percent Solution for Simplifying the Tax System

Article excerpt

Can we simplify the tax system," asked President Bill Clinton at a news conference, "without being unfair or increasing the deficit?" His rumination was in response to a question about a "flat tax," and he went on to pledge: "If we can do it, then I am open to it."

Challenge accepted. Today we're going to save everybody a lot of time and come up with a new tax system.

The "25 percent solution" is (a) comprehensible to the human brain; (b) stimulating to savings and investment, which creates jobs; (c) satisfying to Republican family-value tax cutters, and (d) passable by a Republican Congress and "fair" - that is, progressive enough to be signable by a Democratic president.

Begin by assuming a compromise between the Pete Domenici-John Kasich deficit hawks and the Jack Kemp tax-cut hawks (doves are out this year). Figure a tax cut of $100 billion a year, a nice round figure, accompanied by much greater spending cuts to balance the budget in seven years.

How do we rejigger the tax system to get there? First, we embrace the bipartisan idea now sweeping the country of a "flat tax." This means knocking down tax rates that have soared to 40 percent, and closing sacred loopholes.

Of course, a Draconian flat tax - 12 percent of everybody's income, no deductions at all - would raise the same amount we collect today, but would cause rioting in progressive streets.

Most of us accept as "fair" this principle: The poor should pay nothing, the middlers something, the rich the highest percentage.

Now here's my plan, which steals a little from everything out there.

Your first $15,000 of income is tax-free. Same for your spouse, and a $5,500 deduction for each dependent child. It will pay to be married with children, and the "working poor" keep all they earn.

Earnings up to $150,000 a year would be taxed at a flat rate of 25 percent. Anything over that is taxed at 30 percent. (O.K., so that's not "flat." One step is pretty flat, and preserves fairness.)

To get tax rates down to this, we have to get the government out of the business of manipulating the tax system to direct social policy. People can best decide for themselves how to spend their own earnings, and investments driven by market forces are more productive than any channeled by Washington. …

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