NCPA - National Center for Policy Analysis


November 1, 2005

John C. Goodman, president of the National Center for Policy Analysis (NCPA) 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.

According to Goodman:

  • Eliminating the across-the-board $9,000-per-person exemption in the Forbes plan would allow the money to be rebated to the bottom third of earners -- those who bring home roughly less than $25,000 for a family of four.
  • Forbes ignores the 12.4 percent Social Security payroll tax (split between employer and employee), for income over $90,000 a year; under the NCPA proposal, the income ceiling would be lifted and all wages would face the same income and payroll tax rates.

Without these changes, says Goodman, the Forbes plan is politically impractical. Politicians will not adopt a new system that taxes the paychecks of the rich at a lower rate than those of blue-collar workers. Under the NCPA proposal all wages would face the same income and payroll tax rates. And they would be taxed only once. All savings would accumulate tax free and be taxed only when withdrawn.

The rebate to low-income earners could be made contingent on their using the money to purchase health insurance and save for retirement -- thus helping to solve two important social problems.

Source: John C. Goodman, "The Flat Tax: Improving on a Good Idea," National Center for Policy Analysis, Brief Analysis No. 537, November 1, 2005.

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