Fair Flat Tax Act

LEIGH POMEROY

Last week on the editorial page of the Wall Street Journal -- also known as everybody's favorite comic section -- there was yet another argument for the so-called "flat tax". What made this article different, however, was that its two authors are Democrats -- Sen. Ron Wyden of Oregon and Rep. Rahm Emanuel of Illinois.

Calls for a flat tax have long been the province of Republicans. Their argument has been to simplify the income tax to one rate and get rid of all the deductions, credits, loopholes and other hoopla. (As I like to beat into my writing students all the time: KISS -- keep it simple, stupid!)

The advantage of this system is that it would strip the enormous complexity from the tax law, thereby taking away all that administrative overhead, whether it be found in accounting offices, in IRS offices or in home offices. That means a savings of hundreds of billions of dollars a year in administrative costs, not to mention a paring down of everybody's favorite whipping boy, the IRS.

Democrats have historically pooh-poohed the flat tax because it would not be progressive. After a certain standard deduction, everyone would pay the same rate.

Wyden and Emanuel have proposed the best of both worlds: A simple tax without the plethora of credits, deductions and loopholes coupled with a modestly progressive, three-tiered tax rate schedule. Whether a taxpayer earns his or her living from wages, salary or investments, the rate would be the same.

Now it's time for Republicans to step to the plate. Wyden and Emanuel are saying, "Let's play ball, and guess what? We'd be happy to travel to your home field."

Will Republicans say, "Yeah, that sounds great!" or are they going to back off now that they've won tremendous tax advantages for investment income earners -- i.e., those at the upper end of the income scale?

Stay tuned. So far this game has been rained out. But perhaps some sanity will yet prevail in Washington and our lives will correspondingly get much simpler.

A short excerpt from the article:

We have proposed the Fair Flat Tax Act, which would require most taxpayers to fill out a simple, one-page Form 1040. There would be just three personal tax rate brackets -- 15%, 25% and 35% -- instead of the current six. Gone would be the maze of regulations and loopholes. The tax code would receive what it desperately needs: a good cleansing.

And it should not just be simpler, but fairer as well -- especially for the middle class. Under the current system, a police officer walking the beat pays a higher effective tax rate than someone who makes their money from capital gains and dividends. The policeman who makes $70,000 in annual wages pays almost 25% of that salary to the federal government, while an executive who makes five times that in capital gains pays just 15%. Today's tax code has not just become anti-middle class, but anti-worker. Wealth and work should be treated equally.

There are other ways to help the country's middle-class families. By eliminating the Alternative Minimum Tax, which our plan does, we can put an end to the process that forces millions of Americans to do their taxes twice. These measures can help taxpayers without eliminating the incentives used most by the middle class: home mortgages, retirement savings and education.

For more info on this issue, see:
Library of Congress THOMAS Listing for S.1927
"The Fair, Flat Tax Act of 2005 (Senate Bill S.1927)" from About.com
"Wyden Touts Tax Simplification"