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The Optional Flat Tax

By Sam Brownback

People often laugh when I say on the campaign trail that the tax code should be taken behind the barn and killed with a dull axe. In fact, one man in Iowa was so excited by this proposal that he presented me with an axe before I finished my remarks (fittingly, I was speaking in a barn).

There's a reason people welcome my proposal to kill the tax code -- it's a monster of inscrutable complexity, and I say that as a former lawyer who took every tax law class I could.

Today's tax code -- which is sixteen times longer than the Bible -- is unpredictable, manipulative and hinders the economic growth that generates more prosperity for all Americans.

Past efforts at fundamental tax reform have hit a brick wall of political and institutional opposition. When you attack the tax code head -- on, you're taking on every lobbyist in Washington. Everyone agrees that we need tax reform, but every industry and interest group has its hard -- won and coveted part of the code.

That is why I propose an optional flat tax that would exist alongside the current code. This approach does not gore any of the tax code's sacred cows and it could actually be enacted into law. An optional flat tax would generate economic growth and be vastly more transparent, simple and family -- friendly than the current code.

The growing menace of the Alternative Minimum Tax has created a unique political environment for just this kind of reform. As the AMT snares more and more taxpayers -- taxpayers it was never intended to reach -- AMT reform has become a pressing issue for members of Congress who, in past years, have been supportive of a tax previously limited to high -- income earners. An optional flat tax offers a realistic solution to the need for AMT reform, as it would effectively serve as an alternative maximum tax.

Here's how the optional flat tax would work. If you prefer filing your income taxes under the current system -- for whatever reason -- then you could continue to do so. Or, you could file your taxes under the optional flat tax.

To account for the complicated credits and deductions in the current system, the optional flat tax would offer a generous personal income exclusion indexed for inflation. For individual tax filers, their first $20,000 of income would be excluded from taxation. For joint, married tax filers, their first $40,000 of income would be excluded.
Looking at the work of many tax experts, I expect the optional flat tax rate would be in the range of 15 to 20 percent.

The flat tax would partially pay for itself by boosting GDP growth.

But we can achieve further savings by combining fundamental tax reform with fundamental spending reform.

Today's system is built to spend: just ask any member of Congress who has suggested cutting a program and earned the wrath of interest groups and colleagues who have something at stake, regardless of the merit or effectiveness of that program.

I propose creating an independent commission that would review all federal programs for effectiveness, waste, relevance to their original purpose and redundancy with other programs. This commission would present Congress with a list of programs to reduce or eliminate, and Congress would get one up -- or -- down vote, without amendment, to adopt or reject the commission's recommendations.

The beauty of this approach is that it sidesteps the political forces that have stymied even the most incremental reductions in federal spending. A similar approach, known as the Base Realignment and Closure Commission, has helped the Pentagon save tens of billions of dollars by closing military bases.

Coupled with spending reform, the optional flat tax is politically viable and economically sound.

The low rate and simplicity of the new system would be attractive enough that today's income tax structure would become nearly obsolete. We have seen this in Hong Kong, which has two tax systems, but where almost everyone opts for the flat tax system.

Also looking abroad, I'd note that of the sixteen jurisdictions that have gone to a flat tax, none have returned to their previous systems. A 2004 analysis of eleven countries with a flat tax found that nine of the eleven outperformed the average GDP growth rate in major industrial countries.

This proposal will do more than protect and ensure a strong economy.

The optional flat tax offers the path to remain competitive in an increasingly flat world where capital moves to the most favorable climate. It provides more freedom, growth and a new way forward for America's economy.

Sam Brownback is a U.S. Senator from Kansas and presidential candidate. He currently serves on the Appropriations, Judiciary, Joint Economic and Helsinki Committees.

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