Two Tax Rates Catching On

A few years ago, I proposed a major overhaul of federal taxation with a plan I called the dual-rate income tax. (See here and here). The plan would get rid of virtually all credits and deductions, be favorable to savings and investment, and compress the current six-rate system down to two lower rates.

I proposed the idea to the president’s tax reform panel in 2005, but the panel didn’t bite. Panel co-chair, former Senator John Breaux, said: “Chris, I looked at your plan; I don’t like it.”

But this year, the two-rate idea is catching on. House Republicans led by Paul Ryan have proposed a two-rate plan called a Simplified Tax. (Please join us to hear Mr. Ryan speak about his plan on December 6). And yesterday, presidential candidate Fred Thompson included a two-rate plan in his platform.

In the long-run, Americans should follow the lead of more than 20 countries that have enacted flat taxes. Meanwhile, the two-rate plan would represent a huge step toward that ultimate goal.