The Center for American Progress, a progressive think tank, is introducing a proposal to overhaul the American tax code today. While the proposal wouldn’t satisfy everyone, I think it’s much better than what we have and much better than what President Bush proposes.
Here are some of the highlights, taken from an American Progress newsletter:
SIMPLICITY — REDUCE THE NUMBER OF TAX BRACKETS: President Bush has added over 10,000 pages to the federal tax code. The American Progress plan would make the system far simpler. The number of tax brackets would be reduced from six to just three — 15 percent (for income up to $25K), 25 percent (for income between $25K and $120K) and 39.6 percent (for income over 120K).
SIMPLICITY — CLOSE LOOPHOLES: The plan would close loopholes in the corporate income tax code, including the “Bermuda” loophole that allows U.S. firms to avoid paying taxes by moving their operations overseas. By closing individual loopholes, the plan would also eliminate the need for the Alternative Minimum Tax (AMT) — a special rate initially created to ensure that the very rich pay some taxes. Without reform, the AMT would impact 36 million Americans by 2010.
FAIRNESS — TAX ALL INCOME THE SAME: Under the Bush administration’s tax policies, middle-class Americans are shouldering more of the burden. The American Progress plan corrects that by simplifying the rate structure and taxing each source of income the same — whether it is dividends from investments or wages.
FAIRNESS — ELIMINATE REGRESSIVE SOCIAL SECURITY TAXES: One of the most regressive components of our tax system is the employee Social Security payroll tax. The flat 6.2 percent tax employees pay on their first $90K of income imposes an effective tax rate four times larger for middle-income workers than the top 1 percent. The American Progress plan would eliminate it. Social Security funding would be strengthened by eliminating the cap on employer contributions (currently there is no employer contribution for income in excess of $90K) and devoting 2.25 percent of Gross Domestic Product (GDP) from general revenues. The plan would not only preserve Social Security funding but cut the program’s long-term deficit in half.
FISCAL RESPONSIBILITY — REDUCE THE DEFICIT: The federal government is on pace to rack up another $1.4 trillion over the next ten years. The American Progress plan is fiscally responsible, reducing the revenue shortfall by $478 billion compared to the administration’s budget. At the same time, the American Progress plan would include a tax cut for the 70 percent of Americans who earn up to $200,000, providing an average cut of over $600.
OPPORTUNITY — INCENTIVES FOR ALL AMERICANS TO SAVE: The American Progress plan would create new opportunities for tens of millions of Americans to save and create wealth. The current deduction system is upside-down — providing a greater incentive to save if you have a higher income (and pay a higher marginal tax rate). The plan would create a new across-the-board 25 percent refundable tax credit for retirement savings. This would provide the same incentives for every American — whether an investment banker or a secretary — to save, including the 33 million Americans who don’t earn enough to have income tax liability.
OPPORTUNITY — INCREASE TAKE HOME PAY FOR LOW-INCOME TAXPAYERS: The American Progress plan provides more take home pay for those who need it most. Currently, more than 20 million of the country’s poorest children receive less than the full benefit from the child tax credit, and 8 million children receive no benefit at all. The American Progress plan gives every family earning over $5,000 a year access to the child tax credit. It also makes sure that single working parents who receive the Earned Income Tax Credit don’t lose their benefits just because they get married.
I don’t know about all the numbers claimed in the announcement; others will audit them, I’m sure. However, I like the goals of a simplified, progressive tax plan that closes loopholes, eliminates the AMT, eliminates the ridiculous cap on Social Security payments, and reduces the deficit.This plan runs counter to the current Conservative goal of converting our tax system to run on wages instead of all income. For that reason, I doubt this plan would ever get a hearing in the current Congress. However, I think this plan is worthy of consideration.