WIDEN THE GAP:

A Slice for Democrats: Party Needs a Tax Plan Before Next Elections (David S. Broder, November 17, 2005, Washington Post)

[E]arlier this week I heard Democratic Sen. Ron Wyden of Oregon argue that his party had better be prepared to enter the debate on exactly that topic -- or else cede vital political ground to President Bush.

Wyden has introduced what he calls the Fair Flat Tax Act of 2005 as the starting point for what he expects to be a major debate next year on tax reform. "I think it is a certainty that Bush will put this issue on the agenda in his State of the Union address," Wyden told me in an interview, "and the Democrats have to be prepared to offer an alternative that makes sense."

Wyden sees 2006 as offering a replay of 1986, when President Ronald Reagan signaled his interest in tax reform and Democrats (who controlled the House then but were a minority in the Senate) seized the initiative from him. Bill Bradley, a Democratic senator from New Jersey, teamed with Rep. Dick Gephardt of Missouri to shape the bill that Reagan signed.

Bradley has encouraged Wyden to adapt the same formula that proved successful 20 years ago: major loophole-closing combined with sharp reductions of income tax rates.

The commission Bush appointed has offered modest steps in that direction in the report it submitted to the president this month, but Wyden says the Democrats can do better.

Like the plan from Bush's commission, Wyden's would eliminate the need for the alternative minimum tax, a device that was originally designed to nail tax-avoiders but that is forcing millions of families in the middle and upper-middle classes to make separate computations and additional IRS payments.

But unlike the plan submitted to Bush, which continues to provide special benefits through lower tax rates for those with dividend and capital gains and interest income, Wyden urges Democrats to treat those sources of income the same as wages and salaries -- and tax them all at the same rates.

He would collapse the current six income tax rates to three brackets of 15, 25 and 35 percent. And he would provide all taxpayers a refundable credit for 10 percent of their state and local income, sales, and property taxes -- a windfall for the 70 percent of families who do not itemize their deductions.

Wyden's plan preserves the most popular deductions -- for home mortgage interest, charities and children -- and keeps the earned-income tax credit. Savings for medical expenses, retirement funds and higher education would still be tax-advantaged.

Democrats have to get rid of the AMT somehow because they think it disproportionately strikes their constituents, so exploit that fact and the existence of a Wyden plan and you should be able to come up with a plan that simplifies taxes and flatten rates to some degree or another, though treating the returns on savings and investments as regular income is a non-starter. You won't get most Democrats, but perhaps enough.

Posted by Orrin Judd at November 17, 2005 8:24 AM