John Mccains New Tax Plan

By: Tom Wheelwright

On Tuesday (Tax Day), John McCain announced his idea for how to simplify the tax filings for mllions of people. Finally, a workable idea!!! His idea is quite simple and would solve many problems. For those of you who didn't hear about it, here it is in a nutshell.

Create an alternative tax that is optional (not mandatory like the AMT). The alternative tax would be a flat tax, with two tax rates, a generous standard deduction, and nothing else. Taxpayers would have the choice of filing under the regular tax system or the alternative system.

This solves many problems without creating the remarkable complexity that comes from a consumption tax (e.g., national sales tax) or other "flat tax" proposals. Because you have a choice, you would be able to take the complex route of the regular tax, using a firm like ProVision to handle your tax filing. If, on the other hand, simplicity is most important to you, you can simply use the flat tax and file a postcard-type return.

What I like about this proposal is that it should eliminate many of the complainers about the current system being too complex. They would have the opportunity to use the simple form. At the same time, it's not a massive overhaul of the current system and so is politically doable, as no one loses. It should allow the IRS to reduce it's audit staff (especially office audits). Finally, it allows the government to continue using the tax system to encourage investment in real estate and business. (Personally, I'm not sure I care whether the government uses the tax system for economic, social and energy policy. The government sure seems to like it, though.)

The only downside I can see is that it would take the pressure off the government to do a massive overhaul of the current system. At this point in history, though, it seems almost impossible to undo decades of complicating the tax system. The tax system is woven throughout our entire economy. So I think that Mr. McCain's proposal is a very good step in the right direction.

One other aspect of John McCain's proposal that I really like. With a flat tax, any time the government wanted to raise or lower taxes, it would be very obvious, since it would have to include a rate change or a change to the standard deduction. It couldn't be hidden like the haircuts we have on Schedule A (itemized deductions) or the income limits on certain tax benefits or the alternative minimum tax.

There are still many issues that would have to be ironed out, such as which income is taxable, but let's give Mr. McCain a round of applause for coming up with a reasonable step in the right direction towards tax filing simplicity for the average, middle-class American.

Warmest regards,

Tom

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