It’s not a flat tax, but my initial impression of the tax reform plan introduced by Sens. Judd Gregg (R., N.H.) and Ron Wyden (D., Ore.) is that it’s a small step in the right direction.
Eliminating the alternative minimum tax is a winner. What’s more, income tax brackets would become flatter: Still not a single rate, but with just three rates (15 percent, 25 percent and 35 percent) the income tax would be as flat as it’s ever been. Some exemptions would remain — and my general preference is to have as broad and loophole-free a tax code, with the lowest rates, as possible — but thousands of exemptions would be eliminated.
Perhaps most important, the corporate tax rate would be slashed to 24 percent from 35 percent, bringing the U.S. more in line with the rest of the industrialized world. Currently, our corporate rate is a high-tax outlier compared with the vast majority of our competitors in Europe and the Pacific Rim. We would remain on the high side, but this would be a significant move toward the middle of the pack — and one of the best things the feds could do to encourage job creation.
There are some problems, most notably that capital gains tax rates would be higher under this plan than even under President Obama’s plan. The rates would rise not only above George W. Bush-era levels, but above (post-1997) Clinton-era levels as well. That’s a disincentive for job creators.
Another negative: The definition of “rich,” if by that term we mean “the people in the highest tax bracket,” would be expanded dramatically. The top bracket would start at just $140,000 for a married couple rather the current $373,650 (the standard deduction would increase to offset this somewhat).
More analysis is needed, and here’s a reminder that bipartisan reforms sometimes meld the worst instincts of the two major parties, not the best ones. But this bill deserves a serious look.