American Proscenium

A Step in the Right Direction

On November 1, 2005, the President’s Advisory Panel on Federal Tax Reform issued its final report and received a chilly response from the proponents of tax reform (too much tax, and too little reform).  However, its proposals constructively addressed key issues that could lead to a simplification of the tax code—to the extent that our huge federal deficits will allow.

The panel proposed two plans: the “Simplified Income Tax Plan” and the “Growth and Investment Tax Plan.”  The former provides simple-minded socialists with what they demand: a slightly more efficient and tolerable improvement of the current progressive income-tax-based IRS code, which is inherently inefficient and unreformable.  The latter incorporates a radical change by substituting a border-adjusted and consumption-based cash-flow tax for the corporate-income tax, an icon of the liberals.  This is significant, because it represents the first time that border-adjusted taxation—the most necessary step toward true reform—has appeared in a public document.

Both plans are committed to maintaining progressivity in the income-tax code.  The current six personal tax brackets (with a top rate of 35 percent) would be condensed to four, with a 33-percent top rate, under the Simplified Plan.  Alternatively, three brackets and a 30-percent maximum were proposed for the Growth and Investment...

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