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November 19, 2004

A Flatter and Fairer Tax Code

By

As President Bush rebuilds his cabinet, we can expect to hear many in the media and on Capitol Hill claim the president lacks a mandate for his nominees and his policies.

           
That's nonsense. The president earned more than 59 million votes -- about 3.5 million more than John Kerry -- in large part by making a convincing case for several clear-cut policy goals, including Social Security reform, a muscular foreign policy and, critically, fixing the tax system.

           
"The American people deserve and our economic future demands a simpler, fairer, pro-growth system," President Bush announced in his acceptance speech at the Republican National Convention in September. "In a new term, I will lead a bipartisan effort to reform and simplify the federal tax code."

 

To keep that promise, President Bush should press Congress to act quickly on tax reform. And he should ensure that this reform meets four broad goals:

  • The tax code shouldn't punish achievement;
  • The tax code should not be used to promote social policy;
  • The tax code should be clear and understandable, and
  • Tax rates should be as low as possible, to encourage economic growth.
This won't be easy, of course. The current system has developed over decades, and every confusing element of it has champions in Congress and lobbyists ready to fight for them.


Many of these people like to talk about "progressive" tax rates. But there's nothing progressive about a system that taxes savings and investments twice, as our current system so often does. The president should insist that lawmakers devise a system that would encourage investment and innovation.


First and foremost, that means bringing down tax rates, since lower rates encourage workers to put in extra hours or attempt to start their own businesses.


It's also time to stop using the tax code to encourage people to do things the government will approve of. Right now, the government gives tax deductions or credits to taxpayers who buy houses, have children or donate to charity. While these are all worthy goals, people ought to decide to do them on their own.


Eliminating all the deductions and credits also would simplify the tax code, which ought to be another of the president's goals. Americans spend more than 6 billion hours filling out tax returns every year. Plus, we shell out more than $200 billion to tax accountants and software companies to do our taxes for us. After all, who has time to read all 1,100 forms and publications that make up the current tax code?


The answer is a fair, flax tax with a generous personal exemption, so the tax burden doesn't fall disproportionately on poor people. All income would be taxed once, at a flat rate. Taxpayers could fill out their return in minutes and mail it in on a postcard, instead of struggling for days and then stuffing form after form into an envelope.


All these reforms probably will be a tough sell in Congress. But departing Sen. Don Nickles of Oklahoma has an idea that could speed the transition: Allow taxpayers to fill out returns under the current system and under a reformed, flat-tax system. Then they could put the returns side-by-side and file the one that benefits them. Most people are sure to prefer the simple system, especially since it will usually save them money in the long run.


President Bush has a clear mandate to make the tax code flatter and fairer. That's what the president wants and what taxpayers deserve. When he succeeds, he'll have turned a mandate into a legacy.


Ed Feulner, president of the Heritage Foundation, a conservative think tank based in Washington.

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