Fair tax? Flat tax? Candidates tout novel plans.

Two want to abolish the income tax – and the IRS. Others say they'd renew the Bush tax cuts.

from the January 4, 2008 edition

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Rudolph Giuliani says he would lower corporate tax rates to 25 percent and introduce a permanent child tax credit and a $7,500-per-taxpayer credit for health insurance. John McCain says he would cut the estate tax rate to 15 percent and require a three-fifths vote of Congress for tax increases. Fred Thompson would cut rates enough to save every family at least $600, according to his website.

As a group, the Democratic candidates differ sharply with their Republican counterparts.

All say they would repeal the Bush tax cuts, for instance. For a Democrat, such a statement is the political equivalent of a no-brainer – it offers an easy way to break with the policies of the past and project an image of change.

But there are differences in their repeal proposals. Hillary Rodham Clinton and Barack Obama would both end the Bush cuts for households that earn more than $250,000 a year. John Edwards, who has positioned himself slightly to the left of the two front-runners, would set the bar lower, repealing them for households with incomes of more than $200,000.

Mr. Edwards says he would also raise the rate on capital gains taxes to 28 percent, so as to "reverse the war on work" and set the taxation of interest income level with that of middle-class earned income, according to his website.

Senator Clinton, meanwhile, would favor a number of targeted tax cuts similar to those her husband employed during his time in the Oval Office. She would offer, among others, new tax cuts for healthcare, college, and retirement. She would expand the Earned Income Tax Credit and the child-care tax credit.

Senator Obama says he would establish a new tax credit of up to $1,000 per household to offset the payroll taxes that fund Social Security and Medicare. He also proposes that the IRS use information that it already gets from banks and employers to give taxpayers the option of simply signing and returning tax forms that are filled in by the government.

His website claims this would save Americans $2 billion in tax preparation fees and up to "200 million total hours of work and aggravation."

Congress would have a big say in any of these proposals. And passage of major tax reform is fraught with obstacles.

But whoever wins, they will have to do something on taxes within the first two years of their administration, notes Brookings Institution economist William Gale. They will either move to let the Bush tax cuts expire, or to extend them, or to change the whole tax system around.

"So it needs the attention of the new administration, basically from Day 1, because it takes a long time to figure out how to reform the tax code," says Mr. Gale.

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