The Wall Street Journal-20080124-The Giuliani Tax Cut
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The Giuliani Tax Cut
There is a lot of talk about change in this year's presidential race. But if Washington is truly broken, as many Americans think it is, then it doesn't merely need to be changed. It needs to be fixed. And the man who fixed up New York is ready to fix up Washington.
Rudy Giuliani has proposed the largest tax cut in modern American history and a dramatic simplification of the tax code. His proposal has received broad support from fiscal conservatives in Washington; yesterday it was introduced as legislation by Reps. David Dreier and Roy Blunt, and by Sen. Christopher Bond. Since Fred Thompson has dropped out of the race, there's no question which candidate offers the best tax plan, or is the best spokesman for advancing the tax- reform cause.
Mr. Giuliani's proposal is a remedy for a quintessentially Washingtonian problem: bloated bureaucracy. When the income tax was introduced in 1913, Congress adopted a one-page filing form and a maximum rate of 7%. The Office of Management and Budget estimates Americans now spend 6.5 billion hours a year filling out tax forms.
Our Founders drafted the Constitution with fewer than 5,000 words; with later amendments it is about 8,000 words. The federal tax code is more than 9 million words. So the document that created the government is less than 0.1% as long as the tax code that funds it. Such is the state of Washington today.
Mr. Giuliani understands how the tax code frustrates and confuses many Americans, and that's why he will give every taxpayer the option of using a one-page "Fair and Simple Tax Form." Under the FAST Form, there will be only three rates: 10%, 15% and 30%. Taxpayers who prefer to use the existing forms will remain free to do so. Prized deductions for mortgage payments, state and local taxes, charitable contributions, and child tax credits will all be preserved on the FAST Form.
Moreover, taxpayers can choose each year which plan works best for them. For instance, a small business owner might take advantage of the deductions in the current tax code one year, but choose the FAST Form the next.
For many families, the FAST Form will be an easy choice. A family of four earning $80,000 per year could see their estimated federal income tax burden reduced by $2,207 -- 24%. A single person earning $35,000 -- who pays approximately 10% using the 1040 Form -- will save 13%.
The FAST form is the centerpiece of Mr. Giuliani's tax plan, but it contains many other advantageous features. He will make the Bush tax cuts permanent. He will cut the corporate tax rate, currently second- highest in the industrialized world, to 25% from 35%, helping American businesses compete while protecting and creating American jobs. He will reinstate the Research and Development Tax Credit, a spur to American innovation that Democrats recently let expire. He will repeal the death tax, which unfairly forces relatives of the recently deceased to sell small family farms or businesses to pay the tax collector. He will cut the capital gains tax to 10% from 15%, sparking private-sector investment and economic prosperity. And he will index the Alternative Minimum Tax for inflation and put in on the course to eventual elimination.
Mr. Giuliani's reforms also include a trio of tax-free savings vehicles to encourage middle-class saving: a retirement savings account; a general-purpose lifetime savings account; and a lifetime skills account (for training and education). All three would function as Roth-style accounts (funded with after tax income, but subject to no taxes upon withdrawal), and would be available to all Americans, regardless of income level.
The retirement savings account and the lifetime savings account would have $5,000 annual limits per individual, and the lifetime skills account would have a $1,000 annual limit, with an available employer match. Mr. Giuliani also champions a health-care tax exclusion of $15,000 annually for families ($7,500 for individuals) to increase Americans' access to affordable, portable, privately controlled health care.
Rudy Giuliani knows self-government, not centralized government, makes America great. His proposals demonstrate an opposition to centralized power and a commitment to a growth society. He'll have to work with congressional Democrats to make such proposals a reality, but he has done so before in New York, an overwhelmingly Democratic city.
In the presidential race, the Democrats' idea of "change" is in reality more of the same -- more power and more money for Washington. Mr. Giuliani has another idea. It begins by fixing the complicated mess of our tax code by offering something simpler, flatter and fairer.
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Mr. Forbes is president and CEO of Forbes Inc. and editor in chief of Forbes Magazine.
