Tax Code Reform Heats Up
Three top reform proposals argue for radical change
By Sue Hoye/AllPolitics
WASHINGTON (April 13) -- There are plenty of tax code proposals floating around Capitol Hill, but all of them focus on two central ideas: fairness and simplicity.
Suggested changes range from completely abolishing the IRS and the income tax to creating a flat tax with no deductions. Some consider both these proposals too regressive and have proposed a graduated flat tax that takes into account income levels when determining tax rates. (That is to say, the higher your income, the higher your tax rate.)
Here are three of best-known and most hotly debated tax code bills before Congress:
Flat Tax Proposal
Rep. Dick Armey (R-Texas) and Sen. Richard Shelby (R-Ala.) are the House and Senate proponents of a flat tax. Under their proposal, the current graduated income tax would be phased out over a three-year period and replaced by a 17 percent flat tax on all businesses and individuals. There would be no deductions or credits.
Proponents claim that pre-tax personal exemptions would be increased to help protect low-income families from an undue tax burden. As proposed, a single person would receive an exemption on the first $11,600 of income. A married couple filing jointly would receive a $23,200 exemption. A $5,300 exemption would be allotted for each dependent child.
According to U.S. Treasury data, a flat tax would cut taxes by $30 billion in the first year. Rigid spending caps are also part of the bill, which shares the goal of balancing the budget by 2002. The bill numbers for a flat tax are H.R.1040 for the House and S.1040 for the Senate.
Personal Exemption: $5,300
National Sales Tax Plan
Rep. Dan Schaefer (R-Colo.) and Rep. Billy Tauzin (R-La.) introduced the National Retail Sales Tax Act to the House in 1997. The sales tax plan would impose a 15 percent tax on all "the gross payments for the use, consumption or enjoyment in the United States of any taxable property or service, whether produced or rendered within or without the United States."
As proposed, the national sales tax would be administered by the states, not the IRS. The tax would operate much like a state sales tax, meaning it would be added to the cost of an item at the time of purchase.
The language of the bill suggests the abolishment of the current IRS and the creation of a smaller tax bureau to collect trust fund excise taxes, like the gasoline tax. The Social Security Administration would enforce and collect payroll taxes.
According to the proposal, the sales tax rate would decline in the future to 12 or 10 percent with the growth of the economy and a reduction in spending. The bill number is H.R. 2001.
The 10 Percent Plan
House Minority Leader Dick Gephardt (D-Mo.) has proposed a plan calling for five new tax brackets with rates ranging from 10 percent to 34 percent. According to Gephardt, this plan would reduce the tax bills of more than three of every five Americans.
Specifically, Gephardt's plan calls for a 10 percent taxation on the first $23,000 of an individual's income, and 10 percent levy on the first $46,000 of a married couple's income. From there rates would progress to 20, 26, 32 and 34 percent.
This plan preserves the deduction of interest on home mortgages. The bill number for Gephardt's plan is H.R. 3620.
Head of Household: $6,600
Personal Exemption: $2,900
Tax rates based on taxable income:
Marginal Tax Rate of 10%:
Head of Household: $0-32,000
Marginal Tax Rate of 20%:
Head of Household: $32,000-40,000
Marginal Tax Rate of 26%:
Head of Household: $40,000-75,000
Marginal Tax Rate of 32%:
Head of Household: $75,000-137,500
Marginal Tax Rate of 34%:
Married: Income over $275,000
Head of Household: Income over $137,500
Single: Income over $137,500