NCPA - National Center for Policy Analysis

A KINDER, GENTLER FLAT TAX

September 30, 2005

John C. Goodman, president of the National Center for Policy Analysis says Steve Forbes' flat tax plan doesn't go far enough. He proposes an even lower flat tax rate -- 14 percent, in contrast to 17 percent under the Forbes plan -- and at the same time offers to do more to help low-income people.

Boston University economist Laurence Kotlikoff and Goodman recommend:

  • Replacing the across-the-board $9,000-per-person exemption in the Forbes plan with a rebate to the bottom third of earners, those who bring home roughly less than $25,000 for a family of four.
  • Making the income and payroll tax rates the same for all workers, so that the same rates would apply to everyone and every type of income.
  • And, after taxing wages and income once, allowing all savings to accumulate tax free.

An interesting point of the Goodman-Kotlikoff plan is that the tax rebate could be used to solve other social problems. For example, instead of people automatically getting the 14 percent rebate, they would be required to show that they have health insurance and a retirement pension as a condition:

  • Specifically, to get one-half the rebate (7 percent), low-income families would have to produce proof of health insurance.
  • This would encourage millions of people who qualify to enroll in Medicaid or in their employer's health plan.
  • Barring that, families could apply the tax rebate to health insurance they purchase on their own.
  • To receive the other half (7 percent), they would have to show proof of a pension, an IRA, a 401(k) or some other savings account.

According to Goodman, instead of national health insurance and more government spending on the elderly, his flat-tax proposal will help people to solve these problems on their own.

Source: John Goodman, "A Kinder, Gentler Flat Tax," On My Mind, Forbes magazine, October 17, 2005.

 

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