Mr. Thompson on Taxes
IN A PRESIDENTIAL campaign disappointingly short on detailed proposals, particularly on the Republican side, former Tennessee senator Fred Thompson gets points for specificity on a growing number of issues. The latest is tax policy, a matter that the next president will be required to address, given the looming expiration of the Bush tax cuts and the failure to handle the effects of the alternative minimum tax with anything other than a yearly patch, not to mention increasing budgetary pressures. Unfortunately, Mr. Thompson's plan is specific and terrible: unaffordable, unwieldy and unfairly skewed to the rich.
Mr. Thompson would establish a new tax system, to run parallel to the existing system, with two tax brackets: 10 percent for households earning under $100,000 a year, 25 percent for those with income above that. This alternative system would more than double the standard deduction ($25,000 for joint filers) and retain the existing personal exemption ($3,500) while eliminating all other deductions and credits. It's odd to argue that an overly complex tax system should be replaced with one that keeps the complexity but adds an alternative calculation for taxpayers to make. Furthermore, the largest benefits of this proposed system would flow to the wealthiest Americans; their top marginal rate would fall from 35 percent to 25 percent, and they would still enjoy a 15 percent tax rate on capital gains and dividends. The Urban-Brookings Tax Policy Center estimates that if the plan were put into effect this year, the bottom 20 percent of taxpayers would get a tax cut worth 0.2 percent of income; the top 20 percent would enjoy a cut worth 5 percent of income.
In addition, Mr. Thompson would permanently extend the Bush tax cuts, eliminate the estate tax, abolish the alternative minimum tax and cut the top corporate tax rate from 35 to 27 percent. The Tax Policy Center puts the cost of all of this at close to $7 trillion over the next 10 years, not including the corporate cut; this is a breathtaking chunk of the $35 trillion in tax revenue that the Congressional Budget Office estimates would be raised in that period if current law remains unchanged and the Bush tax cuts are permitted to expire. Mr. Thompson shrugs that off, asserting that the economic benefits of tax cuts make them less expensive in practice than how they are scored as proposals. Even if that is true, the loss will be large.
Pressed about what cuts he would impose to make up for that loss of revenue, Mr. Thompson mentioned his Social Security plan. Mr. Thompson's plan indeed proposes cuts in promised Social Security benefits, but that would only address the shortfall between what Social Security has promised and what it can afford to deliver -- not lost income tax revenue. Not only that, Mr. Thompson's Social Security plan contemplates draining money away from general revenue to shore up the solvency of the retirement system. Specificity is commendable. Fiscal responsibility would be even better.
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