Harold Ford proposes a middle class flat tax

Former Congressman and Democratic Leadership Council Chairman Harold Ford has an excellent tax reform proposal to benefit middle and working class Americans. I have my differences with the DLC especially on economic issues but Ford's idea appears to be sound public policy and good politics. Ford is handing Democrats the kind of idea that wins elections.

Making his case for a middle class flat tax in a Washington Times column http://www.washingtontimes.com/ published on November 29, Ford states: "This is simple and fair: no middle-class family with an income of under $150,000 should ever pay an effective tax rate of more than 10 percent. If what they owe after calculating their taxes is more than 10 percent of their income, they won't have to pay a dime above 10 percent. If they owe less than 10 percent, they pay the lesser amount."

Ford writes:

We ended the last century with America's economic might at its zenith, with Americans at their most optimistic, and with nearly all who endeavored to make the most of their opportunities and talents getting ahead in life. John F. Kennedy's declaration that a rising tide will lift all boats was alive and well.

Middle-class Americans generate little or no national savings. We've had four straight years of rising productivity and falling incomes. Many Americans are earning less, while the costs of a middle-class life have soared: In the last five years, college costs are up 50 percent, health care up 73 percent, and gasoline more than 100 percent. Rising housing costs have driven people farther and farther from their work.

These trends undermine our way of life because middle-class strength and growth represent the backbone of American life.

Our national political discussion about how to grow the middle class often becomes just that, a political discussion punctuated by harsh talk of "class warfare." In fact, class warfare is under way — as billionaire Warren Buffet is fond of saying — and the middle is not winning.

To address the challenges of the middle class, Democrats should advance an agenda that aims to do something loftier than just repeal the Bush tax cuts on millionaires. It should boost incentives for average Americans to increase savings and investments, and help them participate more fully in the upside of economic growth.

http://www.washingtontimes.com/article/20071129/COMMENTARY/111290014/1012

As Ford argues for a middle class flat tax, many Republicans are promoting tax changes that would transfer more wealth to the super rich.

Writing in today's LA Times http://www.latimes.com/, columnist Michael Kinsley exposes the flaws in the so-called flat tax and fair tax proposals of Republican Presidential contenders Fred Thompson and Mike Huckabee. As Kinsley points out, middle and working class Americans would pay higher taxes as the rich get huge reductions in taxation under these GOP plans.

Kinsley writes:

The central gimmick of Fred Thompson's recently announced tax plan is to offer people a choice. They can pay taxes under the current rules -- with some juicy new breaks added from the big- and small-businesses wish lists -- or they can pay a so-called flat tax, with lower rates and fewer deductions. So anyone who wants a simpler tax code could have one. But for people who get a lot of deductions now, the simpler tax would be a higher tax. How many people, do you suppose, would choose simplicity over complexity, even if simplicity would cost them more? My bet: approximately zero.

Like most flat-tax advocates over the years, Thompson puts a thumb on the scale by combining flatness with a large tax cut. The Congressional Joint Committee on Taxation figures that Thompson's plan would fall a mere $2.5-trillion short of revenue over the next decade, compared with the current system. If you can borrow $2.5 trillion, it makes it easy to arrange for more people to see their taxes go down than up if they choose the flat-tax alternative.But this has nothing to do with simplifying the system.

If you don't care how much debt you run up, you can give everyone a tax cut without bothering about simplification. You can stop collecting tax at all! That would be nice and simple. The real strategy of Thompson's plan is a familiar one from past Republican tax plans: Give large breaks to business and the wealthy (such as abolishing the estate tax), bribe the middle class to go along by offering smaller breaks to them, and don't worry about paying for it all.

Mike Huckabee, currently enjoying his 15 minutes, makes a slightly different political mistake, which we might label, for lack of a better term, "total honesty." He has endorsed something called the Fair Tax proposal, which involves repealing all federal revenue sources -- the income tax, Social Security tax, estate tax, everything -- and replacing them with a 23% sales tax on everything except education.

The Fair Tax propaganda says it is intended to be "revenue neutral." That is, it would bring in just as much money as the taxes it replaces.This makes it easy to figure who would win and who would lose. It's a zero-sum game: Every dollar someone's taxes go down is a dollar someone else's go up. What you spend every year is the amount you earn minus the amount you save.

On average, Americans save practically nothing, but wealthier people save more. Very poor people actually spend more than they earn, while Bill Gates and Warren Buffett couldn't spend more than a small fraction of their income. So wealthy people are going to see their taxes go down, which means that poor and middle-class people are going to see their taxes go up.

http://www.latimes.com/news/opinion/la-oe-kinsley1dec01,0,1162496.story?coll=la-opinion-rightrail

Kinsley is right. Thompson and Huckabee are just selling us more "trickle down" snake oil ! We need tax policies that will help working families instead of more tax cuts for the rich. Harold Ford has given Democrats a winning issue with the middle class flat tax. Democratic candidates need to take this idea and run with it.