WILL FAMILIES BENEFIT FROM TAX REFORM?: Joseph A. D'Agostino

...Bush has not endorsed the flat tax, only tax simplification, and maybe this is the reason why: the most popular versions of the flat tax could raise taxes on many middle-class families.

Many conservative, pro-family advocates have long supported a flat tax for its salutary effect on families, such as its elimination of the marriage penalty--which is still around, though in reduced form since the 2000 elections. "An additional benefit of a single tax rate is that it will eliminate the insidious 'marriage penalty,' which taxes married couples at a higher rate than if the man and woman filed singly as individuals," wrote Randy Tate, former Executive Director of the Christian Coalition, on July 9, 1999. "At a time when family breakups are all too common, tax policy should place government on the side of America's families. . . But a flat tax does more than simply hand a windfall tax cut to American families--it encourages economic growth. By taxing income only once (unlike the current system, which taxes income when we make it and again when we save it and earn interest), a flat tax encourages savings and investment. Small family businesses will have incentives to invest on the basis of what makes the most financial sense, not what constitutes the best tax write-off."

At a time when more and more families are starting small businesses or relying on income from working for them--most job creation in this country is by small businesses--that can make a big difference. The increased productivity and economic growth triggered by a flat tax could be its greatest advantage. ...

But there is a danger in the flat tax. Although in the long term it would lead to higher incomes, in the short term it could lead to higher taxes on families which now benefit from the $1,000-per-child tax credit, assuming it is not allowed to expire under the current system. Entin calculates that a family with four children making $50,000 a year could owe about $1,500 more under an Armey-style flat tax with a 17% rate. A similar family making $70,000 could owe more than $2,000 a year. A flat tax that doesn't include a tax cut but is revenue-neutral could even raise taxes on many families with two children, said Berthoud.

Flat tax proponents need to find a way to ensure that their idea doesn't lead to tax hikes on families. Otherwise, there are a lot of people in Middle America whose support they won't earn.

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posted by Eve at 4:07 PM VOTE

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