A few days ago I blogged about the tax reform debate our country needs.
Speaker Newt Gingrich has placed within his 21st Century Contract with America what I think is probably a better version of the flat tax program Governor Perry has proposed, and I think Speaker Gingrich’s explanation is concise and easily understood. Read it below, let me know what you think.
JOBS AND PROSPERITY PLAN: TAX SIMPLIFICATION WITH AN OPTIONAL FLAT TAX
My legislation will also include an optional flat tax of 15% or less. All tax filers would be given the option to pay their income taxes subject to current income tax provisions or to pay under a lower single rate of taxation with limited deductions. A revenue neutral flat tax reform would save hundreds of billions of dollars in compliance costs each year and would eliminate the need for taxes on savings, dividends, and capital gains.
This optional flat tax system will create a new personal deduction of $12,000 for every American. This deduction is well above the current poverty level, ensuring that this new system does not unfairly target the poor. The current $1,000 tax credit for each child aged sixteen or younger would also apply, as would the current earned income tax credit (EITC).
An optional flat tax reform will be simple: tax returns can be done on one sheet of paper. Subtract from income a standard deduction and deductions for charity and home ownership, multiply the result by the fixed single rate of taxation of at most 15%, and the process is over.
Gone will be the stressful hours spent figuring out whether your military service or marital status will adversely affect your return. No more headaches trying to determine where estimated tax payments go. Tax preparation fees could be money spent on something more rewarding.
Such an optional flat tax system would create a new standard deduction, which would be above the established poverty level, meaning an optional flat tax would not unfairly target the poor.
An optional flat tax would eliminate the Alternative Minimum Tax. And if a person had twice as much income as another, he or she would be taxed twice as much. Furthermore, a single rate tax structure would eliminate taxes on savings, capital gains, and dividends. Saving would increase and businesses would expand to create new jobs.
This concept of an optional flat tax would give American taxpayers an opportunity to choose simplicity versus complexity and a single rate over a lot of deductions.
Because the flat tax is optional, it does not raise taxes on a single person or unfairly impact seniors, lower income workers, or the poor.