Thompson Unveils Plan For Voluntary Flat Tax


By: Wall Street Journal

By AMY SCHATZ

WASHINGTON — Fred Thompson became the second Republican presidential hopeful to jump on the flat-tax bandwagon, hoping to reach out to the party’s tax-cut wing to boost his campaign amid falling poll numbers.

The Republican base is seen as split heading into next year’s presidential primaries. There is strong sentiment among many for protecting and building on President Bush’s 2001 tax cuts, set to expire in 2010, while fiscal conservatives have pressed for budget cuts to stem high deficits caused by the Iraq war and expanded domestic spending.

Mr. Thompson’s tax plan, announced yesterday, suggests he is finding it easier to build on Bush policies than to calculate the huge price tag of savings needed to bring the budget back into balance.

The introduction of a voluntary flat tax is a cornerstone of Mr. Thompson’s proposal. Taxpayers could choose to pay a flat income tax, which would be charged at two rates: 10% for joint filers with income up to $100,000 (or $50,000 for individuals) and 25% on incomes above that. Americans who opted for the flat-tax plan, however, wouldn’t be allowed to take tax credits or deductions including mortgage interest, and would continue to pay taxes on capital gains and dividends.

Former Arkansas Gov. Mike Huckabee also favors eliminating income taxes in favor of a flat tax. He has embraced the idea of the “fair tax,” which would abolish the Internal Revenue Service and income taxes for corporations and individuals in favor of a 23% sales tax on all goods and services.

Mr. Thompson’s tax plan doesn’t come without risks, because it would most likely be funded by lower government spending on Social Security and Medicare benefits. The former Tennessee senator’s support in the early voting states of Iowa and New Hampshire is already low, according to recent polls, and the plan may not play well there with the senior citizens, who vote in large numbers.

Mr. Thompson’s tax plan shares many attributes with those of other leading Republican candidates, including former New York Mayor Rudy Giuliani, former Massachusetts Gov. Mitt Romney and Arizona Sen. John McCain. All have called for an extension of President Bush’s tax cuts. They have proposed the end or curtailment of the estate tax and the alternative-minimum tax and other variations on tax relief for corporations and investors.

For all of its details, Mr. Thompson’s plan is missing a few key numbers, most notably a projection about how much it might cost the Treasury in lost revenue. The campaign didn’t provide a figure, because of the difficulties of accounting for economic growth as a result of Mr. Thompson’s proposed tax cuts, an aide said.

Just one element of his plan — eliminating the alternative-minimum tax for all Americans — would cost more than $1 trillion over 10 years, according to projections by the Tax Policy Center, a joint venture of the Urban Institute and Brookings Institution.

Mr. Thompson suggested his plan would be funded, in part, by changes to the Social Security system. He has proposed limiting payments to future retirees by cutting their initial benefits. “And if you do that in conjunction with indexing the initial Social Security benefit to inflation instead of wages, at the end of the day you’re going to save Social Security,” Mr. Thompson said on Fox News Sunday.

Later, Thompson spokeswoman Karen Hanretty said the tax plan would “find additional revenue through Social Security and Medicare reform, government reform, trimming discretionary spending and strong economic growth.”

Write to Amy Schatz at Amy.Schatz@wsj.com

* Content From the Wall Street Journal supplied by Elva Ramirez:

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