Democratic (Senator Wyden) FIT Tax Plan reduces deficit and is fair

[papau]

http://wyden.senate.gov/media/2005/10272005_fair_flat_tax_act.html

Wyden Provides Real Tax Relief for Middle Class
in “Simpler, Flatter, Fairer” Reform Plan
Senator’s legislation treats income from work and wealth equally,
ends breaks that have shifted burden onto middle-class Americans

October 27, 2005

Washington, DC – At a press conference today, U.S. Senator Ron Wyden (D-Ore.) introduced comprehensive tax reform legislation that contains major tax relief for America’s middle class as it makes the U.S. income tax code simpler, flatter and fairer. Wyden’s bill, the “Fair Flat Tax Act of 2005,” allows every taxpayer to file taxes on a simplified, one-page 1040 form, collapses individual tax brackets from the current six down to three and sets one, flat corporate rate. It also ends the Alternative Minimum Tax for personal income taxes, and allows federal taxpayers who don't itemize to receive a tax break for state and local taxes. Ending a number of corporate tax preferences also allows the legislation to reduce the deficit by approximately $100 billion over the next five years.

“By making the system simpler, flatter and fairer we can provide real tax relief to the struggling middle class of America and begin reducing the deficit that is destabilizing our economy, our security and our future,” Wyden said. “This major middle class tax break will help financially struggling American families who have been hammered by the economy in recent years.”

According to the Congressional Research Service, the Fair Flat Tax Act of 2005 can provide tax cuts for middle-class families and for families with wage and salary income up to $150,000. Wyden’s plan provides higher standard deductions for every individual, ends tax provisions that prefer unearned income such as capital gains and dividends over wage and salary income, and provides an unprecedented, refundable 10 percent tax credit for every taxpayer’s state and local taxes – a direct benefit for the more than two-thirds of taxpayers who currently do not itemize their taxes.

“It’s time to start treating work and wealth equally in the tax code,” said Wyden. “America can do better than a two-tiered tax system that makes a policeman pay a higher effective tax rate on his wages than the most fortunate American pays on his investment income. We can do better than a tax code that allows corporations to avoid paying taxes while the burden lands on the middle class.”

Corporate tax breaks targeted by the Wyden legislation include those that offer preferences to one business sector over another, as well as those that allow companies to defer or avoid altogether paying some taxes. A number of individual tax preferences are repealed under the Wyden legislation as well, but those used most by Americans – including home mortgage deductions, child credits, and breaks for charitable contributions, health and education savings – remain, as do protections for the most common investments for retirement. America’s seniors, military and veterans and the disabled will continue to receive targeted tax breaks contained in the current code.

The Fair Flat Tax Act of 2005 is expected to be referred to the U.S. Senate Finance Committee, of which Wyden is a member. The Finance Committee would also likely hear any proposed legislation that comes out of the President’s Advisory Panel on Tax Reform, which is expected to issue its formal recommendations by November 1.
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EXAMPLE: Right now, a teacher and truck driver making a combined $60,000 pay a 25% tax rate on their last dollar of income (that's not their overall rate, but the marginal rate; if they get a $1,000 raise, they pay $250.) But if Paris Hilton or Bill Frist buys and sells some Halliburton stock for a $100,000 profit, they only pay 15%. And those are not unfair examples. According to a New York Times article last year, capital gains and dividends make up, on average, 3 to 4% of the income of people who make less than $100,000 ... but 24.7% of the income of those who make between $500,000 and $1 million, 37.6% of the income of those making between $1 and $10 million, and 61.4% of the income of those making over $10 million. As a result of favorable tax treatment for these forms of income, as Pulitzer prizewinning tax reporter David Cay Johnston has noted, the richest 400 Americans pay a lower Federal tax rate than the merely rich, people making, say, $300,000 a year.

http://www.slate.com/id/2129113/?nav=navoa
http://www.npr.org/templates/story/story.php?storyId=4984712

[kevsand]

1. Wow.

That just makes way too much sense to ever be adopted. On the other hand, a halfway decent populist could go a long way campaigning on a plan like that. This is exactly the sort of thing that the dems need to run on in 06...

[papau]

2. We have a Tax plan and a Way Out of Iraq plan - and media says we

have no ideas.

sigh.....

I do love my "not controlled by the RW GOP - we just act that way" - Media!

:-(

[welshTerrier2]

3. "treating work and wealth equally"

i've written this phrase about 1,000 times on DU ... it's time we stopped giving tax discounts for earnings on capital gains when we tax the wages of American workers at higher rates ... it's outrageous ...

Wyden's plan sounds interesting but i think he falls far short of meeting the objective he cited of "treating work and wealth equally" ...

the reason i say this is that his plan is still primarily a tax on INCOME ... a better, FAIRER plan would be to tax wealth ... just to clarify, someone with billions in the bank and little or no taxable income should be paying much, much more tax than they currently do ... taxes, to be fair, have to be based on "ABILITY TO PAY" and not based solely on INCOME ... a billionaire with very little income has way more ability to pay than a worker earning say $50K ...

"treating work and wealth equally" means not just taxing income but taxing wealth as well ...