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.

By , Staff writer of The Christian Science Monitor

Tax reform is a perennial issue in presidential politics, and it may yet emerge as a key topic in the 2008 race.

So far, healthcare arguably has been the top domestic issue of the campaign, particularly on the Democratic side. But recession worries are beginning to push economic issues to the top of the list of voter concerns.

In addition, President Bush's tax cuts expire in 2010, and the eventual GOP and Democratic nominees are likely to sharply disagree as to whether they should be extended. And this election cycle features two candidates – Republicans Mike Huckabee and Ron Paul – who propose to eliminate the federal income tax.

Recommended: Could you pass a US citizenship test?

"I'd like you to join me in the best 'going-out-of-business sale' I can imagine – one held by the Internal Revenue Service," says Mr. Huckabee on his campaign website.

Candidates' tax proposals – like all their line-by-line issue papers – can be seen as symbols of the image they want to project, as much as serious ideas about governing.

Huckabee and Mr. Paul have both positioned themselves as outsiders unbeholden to the powers in their own party. Elimination of the income and payroll taxes, and their replacement with a national retail "Fair Tax," would be a radical step, say experts.

Some economists have long held that a national sales tax would be a more economically efficient way of financing US activities. It would encourage savings, and discourage spending, for instance. It would eliminate deductions that skew the tax code.

But other economists point out that some of those deductions, such as the one for interest paid on home mortgages, are enormously popular. Sales taxes are regressive – that is, they affect the poor, who must spend a higher percentage of their income to live, more than the rich.

And there is debate over whether a 23 percent national sales tax, as called for by Huckabee, would raise enough money to replace the taxes lost. Some economists say the rate would have to approach 50 percent, particularly as Huckabee's plan also calls for a "prebate" cash subsidy for poor taxpayers.

The tax proposals of the other major Republican candidates are all generally GOP mainstream. All would make the Bush tax cuts permanent, for instance. All express interest in cutting taxes.

Mitt Romney, for one, would lower the corporate income-tax rate, in the name of making US firms more competitive in the world economy. He would also eliminate all taxes on interest, dividends, and capital gains for those with incomes below $200,000.

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.

Share this story:

We want to hear, did we miss an angle we should have covered? Should we come back to this topic? Or just give us a rating for this story. We want to hear from you.

Loading...

Loading...

Loading...