Ronald Reagan was the last president who achieved significant tax reform. Republican candidates want to replicate the Gipper’s feat by simplifying the system and reducing the burden. A fix is long overdue.
Jon Huntsman was first out of the gate in calling for eliminating all deductions and credits in favor of three lower marginal rates of 8 percent, 14 percent and 23 percent. Then came Herman Cain and his bold “9-9-9” plan, which would impose a tax of 9 percent on business income, 9 percent on individual income (with only charitable deductions allowed) and a 9 percent national sales tax. Ultimately, this system would give way to the “fair tax.”
Both Rick Perry and Newt Gingrich would let Americans choose between filing the current long forms with deductions and credits or select a flat tax offering limited deductions. The former House speaker’s flat tax is 15 percent with only mortgage-interest and charitable donations being deductible. The Texas governor’s rate is 20 percent, and those who make less than $500,000 are allowed to deduct mortgage interest, state and local taxes and donations to charities.
While neither of these proposals is totally flat, they are a step in the right direction. “We shouldn’t lose the flat tax because some powerful lobbies in homebuilding and realtors complain about home-mortgage deductions,” said Grover Norquist of Americans for Tax Reform. Mr. Norquist believes that offering a choice of systems will help smooth the way for massive restructuring. “Optional reduces the opposition, both from individuals who assume they will get [burned] and the lobbies which spend a lot of time getting those deductions and credits in,” he said.
In comparison to these bold plans, those from long-time front runner Mitt Romney and Rep. Michele Bachmann, a former tax attorney, are rather tame. The Minnesota representative offers generalities about eliminating the current tax system, reducing the number of tax brackets and fixing the Alternative Minimum Tax.
The former Massachusetts governor’s 59-point economic plan would maintain the current marginal individual tax rates and code. Mr. Norquist believes that competitive pressure will force all the candidates to climb aboard the flat-tax bandwagon. “What Romney came out with was so minor,” he said. “And because of that, he is forced now to come up with a plan to compete with Perry’s and Gingrich‘s.”
The GOP hopefuls agree on a number of key points, including the need to kill the death tax and transition to a territorial tax system.
They also want to eliminate the capital-gains tax in some way to help spur the economy. Mr. Gingrich, Mr. Huntsman and Mr. Cain would completely eradicate the burden on investors. Mr. Perry would cut the tax only for long-term capital gains. Mr. Romney would keep the tax rates in place for those making over $200,000 but eliminate it for those who make less, and the same for the dividend tax. Everyone supports entirely doing away with taxes on dividend income in some way.
This could be the start of a good thing for taxpayers. Republicans are competing over who can go the furthest in terms of radical overhaul of the system everyone agrees is broken. If enough voters turn out to back major change on Election Day 2012, they can look forward to lower taxes in 2013.
Emily Miller is a senior editor for the Opinion pages at The Washington Times.