In his column in today's Wall Street Journal Rick Santorum writes to plug his 20/20 tax plan. He is campaigning for president.
[I]n my first 100 days as president, I will submit to Congress a comprehensive Economic Freedom Agenda that will abolish the existing tax code. Under “The 20/20 Flat Tax: A Clear Vision For America,” individuals will pay a simple, low 20% individual rate that will be applied to all streams of income. It eliminates the marriage penalty, death tax and alternative minimum tax. It will treat every American the same. No longer will savings and investment be penalized.
There's a lot to like about Santorum's plan. His column is titled "A Flat Tax Is the Best Path to Prosperity," and under his "20/20 Flat Tax" individuals and corporations would both be taxed at the 20% rate, hence the "20/20" in the name. It would undoubtedly promote economic growth and job creation, which could only help my 401K/IRA investments.
Businesses too will benefit from a flat 20% tax rate. It will replace the current corporate income-tax rate of 39.1% that is only exceeded by Chad and the United Arab Emirates. An initial 0% tax rate on American manufacturers, phasing up to 20% over two years, will help make America the No. 1 manufacturer in the world again.
Yes, it's a nice plan, and I think I have an idea about where he got the catchy name.
With a clear majority of adults in favor a flat tax, now is the time for tax reform. I propose a 20-20 tax plan -- 20% with a $20,000 exemption. The first $20,000 of taxable income would be exempted, with taxable income being total income minus any actual expenses incurred earning it. A 20% tax rate would apply to the what's left. So, taxable income of $20,000 or under would result in $0 income tax due. A taxable income of $25,000 would result in a net of $5,000 subject to the 20% rate and $1,000 due in income taxes, which equates to an actual tax burden of 4.00% of total income.
Under that formula the tax bill for a someone with $100,000 of total income would come to 16.00% of income. At $150,000 the percentage of taxes paid would be 17.33%. As income rises the percentage of taxes paid rises, always getting closer but never reaching the maximum 20%.
Let me point out that this is actually progressive, but in a smooth arc rather than in abrupt and sharp steps...
I used 20% and $20,000 because 20-20 is kind of a catchy name, but the numbers don't matter so much as the concept. We could cure a lot of ills with a simplified and sensible tax code.
I wrote that back in March of 2011, and obviously my plan differs, but only somewhat, from Mr. Santorum's. I still like the concept, but I would put in an alternative minimum tax of let's say one or two percent for anybody that wouldn't make enough to pay any taxes, basing that on my belief that everybody should pay something even if we have to give them the money to do it.
Although federal revenues might take a hit in the short term under Santorum's plan, it would help federal revenues in the long run. More people with jobs means more people paying taxes, and that wouldn't be a bad thing.
I have to say I like Bobby Jindal's idea of taxing businesses at 0% but for any of these plans to work we would naturally have to eliminate any and all tax loopholes and subsidies. Just about anything is better than what we have right now.
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