Thursday, October 11, 2007

Interesting Federal Tax Reform Proposal

I just read about a new tax reform proposal offered up by a couple of House Republicans that sounds interesting. It's called the "Simplified Tax" system and it comes close to being a flat tax. It has two rates, 10 and 25 percent, with a large standard deduction of $25,000 for married filers and $12,500 for singles. It supposedly would eliminate all other deductions and credits. Dividend and capital gains would be set to 15%.

Overall this is a drastic improvement over what we have now. Simplification would reduce costs of compliance. Less need for tax accounts and lawyers, for example. Reducing taxes on dividends and capital gains would also free investment capital to move to better uses, helping the economy as a whole. Of course tax accountants and lawyers would stand to lose, as well as other groups who benefit from tax favoritism which is why I wouldn't expect this bill to pass, at least not without adding back some key deductions. Still, it's nice to see something positive coming out of Republicans for a change.