3rd Way: Rethinking Taxes

Weekly Standard, The Party of Sam's Club The basic theme of this section is that tax cuts have succeeded, and therefore further tax cuts are neither particularly popular nor needed. What is needed instead is tax reform. A single big idea, along with a host of specific tweaking to deductions is presented. The big idea is this:

Michael J. Graetz of Yale Law School, hardly a wild-eyed utopian, has called this the "back to the future" plan. Graetz would raise the AMT exemption to $50,000 for single-earners and $100,000 for joint returns, and impose a single rate of 25 percent on all earnings over those thresholds. To replace the lost revenue, he would also--and this is the controversial part--introduce a consumption tax of 14 percent. The benefits of such a proposal would be considerable. It would reward people for saving and investing early in life. It would hit the idle rich--affluent retirees drawing down their savings, trust fund babies buying penthouse apartments--hardest, while the productive rich, and their income from investments and business ventures, would emerge considerably less scathed. And best of all, the consumption tax would be relatively easy to collect, and the $100,000 cutoff would eliminate 100 million of the 130 million income-tax returns filed every year.

Unlike the fair tax proposal this maintains quite a bit of the current system. For example, payroll taxes are unaffected by this. For me, this is both a benefit and a drawback. Intellectually I like the fair tax a lot, and I greatly dislike payroll taxes. On the other hand, too radical a change is difficult to predict the effects of and I am distrustful of that sort of thing. This doesn't seem like a bad plan at face value on tax reform.