TAX WHAT YOU DON'T WANT, NOT WHAT YOU DO:

For almost two decades, Michael J. Graetz, a professor at Columbia Law School and one of the country's leading experts on tax law, has been urging Americans to adopt a saner, more sensible tax system, which he calls the Competitive Tax Plan. The time has come for us to listen.

The centerpiece of Mr. Graetz's plan is a VAT. Unlike Mr. Cruz, he insists that his VAT be as visible as possible. Every time you buy something, you would see the amount of VAT you paid listed on your receipt.[...]

But Mr. Graetz's plan is as progressive as the current code, if not slightly more so. He pulls this off in a few different ways. First, he uses revenue from the VAT to exempt the vast majority of households from income taxes outright. Unless you're earning more than $50,000 as a single person, $75,000 as a head-of-household filer or $100,000 as a married couple, you will no longer have to pay income taxes.

That means that 120 million of today's 145 million income- tax returns will no longer need to be filed. Moreover, the income taxes above those thresholds will be lower than those of today, making it much easier for all families to save, invest and build wealth. Once these higher exemptions are established, you can bet that taxpayers will eviscerate any politician who would dare suggest lowering them.

To help those further down the income scale, Mr. Graetz offers a large payroll tax break that would sharply reduce payroll taxes for all workers earning $40,000 or less and eliminate them for those earning $10,000 or less. His plan also provides families with children with child credits to ensure that they are held harmless by the VAT. Whatever your feelings about the VAT, Mr. Graetz has seen to it that his version of it won't soak the poor.

If the Competitive Tax Plan raises just as much revenue as the current code and is just as progressive, what's the big deal? For one thing, it would make the U.S. a far more attractive destination for foreign investment. Mr. Graetz's plan would allow the U.S. to lower its corporate income-tax rate to 15%. In one fell swoop, we would go from the highest corporate income-tax rate in the industrialized world to one of the lowest. The recent wave of corporate inversions would immediately come to a halt and might even start to reverse itself as foreign multinationals start deciding to set up shop in the U.S.

Far more significantly, by liberating the vast majority of Americans from the income tax, it would be much harder for Congress to micromanage the economy. Consider the mortgage-interest deduction, which allows homeowners to write off a substantial share of the cost of financing a home. What's so bad about it? For one thing, an extraordinary 73% of this benefit flows to households in the top fifth of the income distribution. Does it really make sense to give well-off homeowners a tax break that encourages them to buy more house than they would otherwise be able to afford?

The same goes for countless other targeted tax breaks. If you want the government to subsidize homeownership or higher education or medical care or who knows what else, that's fine. But we should have an open debate about it and pay for it as we would any other spending program.

Many conservatives insist that there's nothing wrong with tax subsidies like the mortgage-interest deduction because they allow taxpayers to keep their own money. But that isn't quite right. Tax subsidies allow taxpayers to keep their own money if and only if they do exactly what the federal government "nudges" them to do.

The real reason that policy makers increasingly rely on spending through the tax code rather than direct spending is that spending through the tax code is much easier to hide. You don't have to openly state that you're handing money to upper-middle-class families to do things they were going to do anyway, usually to enrich some industry or another. You can pretend that you're cutting taxes when you're actually engaging in cronyism.

But if most Americans are no longer paying income taxes, the jig will be up. The political case for special-interest tax subsidies will have been fatally undermined.

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