It's Time to Think Big on Tax Cuts
McCain should revive his support for an alternative flat-tax system.
By JACK KEMP and PETER FERRARA
John McCain needs to show the nation that he has the economic recovery plan to restore long-term economic growth. To do that, he needs to refocus his campaign with a new tax plan. Mr. McCain should come out for an alternative, optional flatter tax system, which he has already supported.
Under this proposal, Americans could file their income taxes under the existing tax code or they could choose instead to pay taxes under a simpler code with fewer deductions but lower tax rates. Building on work already done by Steve Forbes and House Budget Committee member Paul Ryan, a Wisconsin Republican, Mr. McCain could propose an optional tax system with just two rates, 10% and 25%, compared to the six rates of the current code ranging from 10% to 35%.
What's more, such a proposal would include a cut in income taxes, and tax rates, for every American who pays taxes. The alternative system would impose no income taxes on the poor and what is often called "the working class" (the bottom 40% of income earners who don't pay federal income taxes now). This proposal would also eliminate federal income taxes on the middle class, the middle 20% of income earners who pay only 4.4% of all federal income taxes today.
The new tax system would allow most Americans to file their taxes on a single sheet of paper, saving them the hundreds of dollars they spend today to have their taxes professionally prepared.
And such a tax reform would be an antidote to the class warfare, neocollectivist tax policies of Barack Obama. If implemented, it would also jump-start the economy. Under this optional tax system, savings would increase and investment would soar as capital around the world is drawn to a suddenly more confident U.S. economy...
...Mr. McCain has already proposed a freeze on nondefense, discretionary spending, and to limit overall federal spending growth to 2.4%, about one-third the annual increases since 2000. Along with his trade policies, the pro-growth tax rate cuts in this alternative tax system would give Mr. McCain all the major components -- lower taxes, freer trade, a strong dollar -- of Ronald Reagan's 1980 recovery plan...
...Mr. McCain is also already proposing to cut taxes on savings and investment through expensing for capital equipment and technology investments -- allowing such expenses to be deducted in the year they are incurred, like all other expenses, rather than over several years under arbitrary depreciation schedules as today. This would do more for Detroit automakers than government loans.
He would prevent increases in individual income tax rates, capital gains tax rates, and dividend tax rates by making the Bush rate cuts permanent, and cut the death tax to below pre-Bush levels.
Mr. McCain wants to increase the dependent exemption to $7,000 from $3,500 per person today. This would reduce taxes for middle-class families in the 25% income tax bracket by $875 per dependent. It would probably eliminate most of the remaining federal income tax liability for the middle class by itself.
Mr. McCain also proposes to abolish the Alternative Minimum Tax (AMT), which is currently slated to grow to impose a trillion dollar tax increase on the American people in just a few years, burdening 25 million middle-class families. Abolishing the AMT would save middle-class families $2,700 on average per year, a cut of $60 billion each year from current law.
Mr. Obama, by contrast, offers tax increases on savers, investors, small business, employers, and other job creators, a trillion dollar plus spending increase, and new regulatory burdens. That has no prospect of restoring economic growth. It will only do the opposite.
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