The American Mind

Sen. Lamar Alexander takes a page from his fellow Tennessean Fred Thompson and proposes an optional flat tax:

Senator Lamar Alexander (R-Tenn.), chairman of the Senate Republican Conference, today spoke about the April 15 federal tax filing deadline and outlined a plan to create an optional 17 percent federal flat tax with a single-page form. Americans would have the option of choosing this tax over the current income tax and its multi-page forms.

“Family budgets are groaning under the strain of a heavy tax burden, which will only get worse as tax relief expires and higher rates kick in,” said Alexander. “Democratic leaders in Congress have already allowed the state and local sales tax deduction to expire and appear ready to let other tax relief measures for millions of lower- and middle-income Americans meet the same fate. Failing to act will lead to the largest tax hike in history, and that is one of the worst things we can do for family budgets. That’s why I believe Americans should have the option of filing a one-page federal income tax return with a 19 percent rate for two years and 17 percent rate thereafter. This proposal would save money, encourage growth, and relieve a great deal of the anxiety that occurs every spring when April 15 rolls around.”

Under Alexander’s proposal married couples wouldn’t pay tax on the first $25,580 of income. Single heads of households could exempt the first $16,330 of income, and singles could exempt their first $12,790 of income.

The biggest difference between Alexander’s proposal and Thompson’s is Alexander’s is a true flat tax with one rate.

Alexander claims his plan would end the marriage tax penalty and the alternative minimum tax and do it while remaining revenue neutral. I don’t know how the plan pulls that off when it lowers the tax rate from 19% the first two years to 17% thereafter. There must be some assumptions about generating more revenue from broadening the base and number of taxpayers voluntarily choosing the flat tax. How reasonable those assumptions are, I don’t know.

I’m all for tax simplification. A coherent, understandable tax system would reduce cynicism in government. Right now, we all know the dizzying size of the tax code means there are breaks and advantages for a host of interests. There’s a reason lobbying is a profitable industry in Washington, D.C. A simpler tax code would mean more citizens are on the same level playing field.

For two Presidential candidates, Sens. Obama and McCain, reducing political cynicism is a goal of their candidacies. Yet neither are really jumping on tax simplification.

My biggest concern is the plan’s tax neutrality. First, I don’t think it’s possible at the rates Alexander is proposing. Second, I want to see the federal government get less revenue. Government is too big as it is. The goal should be tax revenue decreases along with spending decreases. But a tax neutral optional flat tax could leads us there.

“Alexander Proposes Optional 17 Percent Flat Tax, Single-Page Form”

[picture via theblog]