NCPA - National Center for Policy Analysis

TAX REFORM COMMISSION ISSUES MUCH ANTICIPATED REPORT

January 18, 1996

The present U.S. tax system is hopelessly damaged and should be replaced by a single tax rate of some kind, according to a report issued yesterday by the National Commission on Economic Growth and Tax Reform. The Commission, chaired by former Congressman Jack Kemp, was appointed by House Speaker Newt Gingrich and Senate Majority Leader Bob Dole. Its recommendations are widely seen as charting the future GOP course toward eventual sweeping tax reform.

The Commission refused to endorse any specific tax reform plan, either various flat tax plans which have been proposed, or a national retail sales tax or a consumption tax. But it roundly condemned the current tax code "which penalizes success, retards investment and sends capital fleeing overseas."

Among the points made in the report, entitled "Unleashing America's Potential: A Pro-Growth, Pro-Family Tax System for the 21st Century":

  • Ending current high tax rates and multiple taxation of work, savings and investment would increase income levels by 15 to 20 percent.
  • Current losses due to these practices amount to $4,000 to $6,000 per year for typical middle income families.
  • Hundreds of billions of dollars each year are wasted due to the complexity of the current tax code.

The current tax system, the report said, is as bad for business as for families. According to 1995 IRS estimates, businesses must spend about 3.4 billion hours and individuals some 1.7 billion hours embroiled in tax-related paperwork -- at a cost of about $200 billion a year.

Included in the panel's recommendations:

  • The single rate of taxation should initially be set as low as possible, with further reductions in future years as the economy grows more.
  • Either savers should be allowed to deduct their savings or exclude the returns on the savings from their taxable income.
  • A new tax code must end double taxation of businesses and their owners and permit expensing of investment outlays.
  • Death duties on estates should be eliminated, and payroll taxes for workers should be deductible.

Finally, the panel proposed that a two-thirds majority vote in Congress should be required to raise taxes in the future.

The report was highly critical of the IRS, saying it may be "the most troublesome consequence of our modern-day income tax system. Twice as big as the CIA and five-times the FBI, the IRS controls more information about individual Americans than any other agency."

In summary, the commission's plan is based on a set of principles: lower tax rates, a generous personal exemption, simplification, making the tax code neutral, an end to hidden taxes and long term stability in the tax code.

Source: Thomas McArdle, "Scrapping the Current Tax Code," Investor's Business Daily, January 18, 1996.

 

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