Real Tax Reform

A group of House Republicans has introduced a plan that could eventually break the logjam on moving tax reform legislation through Congress.

House members Paul Ryan, Jeb Hensarling, and John Campbell proposed a “Simplified Tax” system as an alternative to the current complex and inefficient individual income tax.

The Simplified Tax has two rates, 10 and 25 percent, a huge standard deduction of $25,000 for married filers (half that for singles), and a $3,500 personal exemption. It would eliminate all other deductions and credits that litter the current tax code. The dividend and capital gains tax rates would be made permanent at the current 15 percent.

I have proposed a similar two-rate tax plan. Remember also that the bipartisan Tax Reform Act of 1986 created a two-rate income tax structure of 15 and 28 percent. 

The GOP proposal is part of a broader package called the Taxpayer Choice Act, which includes elimination of the alternative minimum tax (AMT). While the Democrats and the Bush White House want to replace a $1 trillion of future AMT tax increases with other revenues, the House GOP plan would simply repeal the AMT. That makes sense because federal revenues have surged in recent years above historical levels. The White House should embrace the new plan as way out of their misguided AMT strategy.

Indeed, the White House could play a constructive role by bringing their corporate tax reform ideas to the table. The House plan does not include corporate tax reforms, but they should be added to the mix. In particular, the Simplified Tax could be paired with a 15 percent corporate tax rate (down from the current 35 percent), which would match the current 15 percent rate on dividends. That would make the combined corporate plus individual rate on dividends similar to the top rate on wage and interest income, and reduce the tax code bias against corporate equity.

The result of these reforms would be a much more efficient tax code that treated different households and different types of income more equally. The lower rates on individuals and corporations would sharply cut tax avoidance and evasion, which has been a concern on Capitol Hill this year.  Investment would pour into the United States, raising wages for every American worker.

As a way to grease the legislative wheels, the GOP tax plan would offer individuals the choice of staying with the old tax system or jumping to the new one. No taxpayer would be a loser under this plan. The only losers would be the army of tax accountants and lawyers needed to keep the current system running.

Voting on Historical Truth

As the House Foreign Affairs Committee passes a resolution to call the mass killings of Armenians that began in 1915 “genocide,” defying all eight living former secretaries of state, who signed a joint letter saying that such a resolution by Congress would seriously harm U.S. relations with Turkey, I recommend the thoughts of a young Armenian-American writer, Garin Hovannisian:

As the great grandson of genocide survivors, the grandson of genocide historians, and the son of Armenian repatriates — though writing, I’m afraid, without the sanction of the generations — I am insulted by that sticker. That Congress “finds” the genocide to be a fact makes the tragedy no more real than its refusal, so far, has made it unreal. Truth does not need a permission slip from the state.

As an heir, moreover, of an American tradition of limited government, I am annoyed that the legislature is poking into a sphere in which it has neither business nor experience: the province of truth. It is bad enough that a committee of aristocrats governs the conventions of politics, economics and human rights. We the citizens scarcely need to sign over the laws of nature, too, lest gravity be repealed and the whole race goes floating about the universe.

Debating the Law of the Sea Treaty

The Law of the Sea Treaty (dubbed LOST by opponents, and LOS by supporters), represents the culmination of a decades-long project to clarify the rules governing the oceans, from the seabed to the waves. The treaty, first rejected by President Reagan in 1982, has been revised over the years; now prominent Republicans, including Indiana Senator Richard Lugar, are urging passage. The Bush Administration has quietly endorsed the process.

Doug Bandow, who wrote a paper for Cato on the subject two years ago, makes a strong case for why the Senate should reject the treaty and continue with the status quo. He squares off this week against Raj Purohit of Citizens for Global Solutions in an online debate at the Partnership for a Secure America.

If you haven’t followed the issue closely, Doug and Raj do a good job of spelling out the relevant arguments for and against.

Where’s Vargas Llosa?

Doris Lessing is no doubt a deserving recipient of the Nobel Prize in Literature, and given her advancing age the Swedish Academy may well have felt that recognizing her was urgent. But I can’t help noting what the Washington Post’s book critic, Jonathan Yardley, said on Sunday:

In the world at large [Mario Vargas Llosa] is known as one of the leading writers in the Latin American literary “Boom,” his acclaim today probably exceeded only by that lavished upon Gabriel Garcia Marquez. That he has not been awarded the Nobel Prize in Literature is nothing short of scandalous.

After deploring the “many nonentities to whom the prize has gone in recent years,” Yardley suggests a possible reason for the continuing error:

Doubtless the prize went to Garcia Marquez on merit, but doubtless as well his cozy relationship with Fidel Castro helped his cause; Vargas Llosa by contrast is of a more conservative persuasion, and this the complacently ideological Swedes do not countenance, much less honor.

If Yardley read Vargas Llosa’s nonfiction as carefully as his fiction, he would note that the great author considers himself a liberal, not a conservative. But the social democrats of Sweden dislike real liberalism as much as conservatism.

Gerson’s Lament

In the WaPo today, Michael Gerson worries that conservatives have “beg[un] to question the importance or existence of moral ideals in politics and foreign policy.” But Mr. Gerson’s idealism, on display in Iraq, has been revealed as delusion. The war in Iraq has sown carnage and instability rather than “freedom” in Iraq, killed nearly 4,000 Americans, and bled more than half a trillion dollars from the pockets of American taxpayers, rather than making us more secure.

The distinction at the heart of the debate over foreign policy is different than that described by Mr. Gerson: it is not between instinctive opponents and proponents of radical change, but between the empirical and the notional—between, on the one hand, those who adhere to observable reality, drawing from history and social science, and, on the other hand, those who rely on the abstract ruminations of essayists in comfortable chairs.

Like so many proponents of the Iraq disaster, Mr. Gerson writes as if the past 5 years never happened, demonstrating himself to be a steadfast adherent to Max Weber’s ethic of ultimate ends and in opposition to Weber’s ethic of responsibility. The former, in Weber’s nomenclature, determines that “if an action of good intent leads to bad results, then, in the actor’s eyes, not he but the world, or the stupidity of other men, or God’s will who made them thus, is responsible for the evil.” The latter, by contrast, acknowledges the importance of outcomes: “he will say: these results are ascribed to my action.” Weber warned that “in the world of realities, as a rule, we encounter the ever-renewed experience that the adherent of an ethic of ultimate ends suddenly turns into a chiliastic prophet.”

There’s really a bit of irony in all this. After all, it was President Bush who once told a confab of religious writers that

The culture needs to be changed. I call it, so people can understand what I’m talking about, changing the culture from one that says, “If it feels good, do it, and if you’ve got a problem, blame somebody else,” to a culture in which each of us understands we’re responsible for the decisions we make in life. I call it the responsibility era. …

Senator Clinton’s “Savings” Plan

Presidential candidate Hillary Clinton has proposed new 401(k)-style savings accounts. But the proposal is not really a savings program, it is a new entitlement program. Savings is about people being frugal today in order to improve their prosperity tomorrow. Real savings helps families and benefits the broader economy. But Senator Clinton’s plan would impose $20 billion per year of damage on families paying the cost, while distorting the economy with higher taxes.

The plan would take money from people who earned it, and simply give it to other people to spend on retirement, buying a house, paying for college, and other items. Those eligible could receive $1,000 a year, but at the expense of others who would bear the burden. I see no justice in that, nor any economic benefit.

I’ve got a better idea: Let’s allow Americans to keep their own money, downsize the giveaway factory in Washington, and reduce government hurdles to individual savings.

Senator Clinton should consider supporting expanded and simplified Individual Retirement Accounts. These accounts would not rob Peter to pay Paul, while boosting real savings and spurring growth to the benefit of all families.