The Corner

Tax Reform

The new tax-reform package from Connie Mack and John Breaux is a classic Washington compromise between Democrats and Republicans. You can see that in the static scoring and progressivity of the plan, as well as in the way that it double-taxes interest. However, there are many pro-growth aspects to the plan, in particular in that it reduces the top income-tax rate for corporations and individuals. The plan also offers cash expensing for business investments and profit calculations on a territorial basis; slowly phases out the housing deduction; puts family health care insurance purchases on a pre-tax basis; and reduces capital costs overall.

While there is no pure flat tax, or consumption tax, in the package, the good should not be the enemy of the perfect. Washington economist Kevin Hasset estimates that GDP would be 3 to 4 percent stronger under this plan, though it perhaps would be 10 percent higher under a single-rate flat tax.

Interest groups are planning a tax-reform initiative to spur White House efforts to put a tax-reform plan in the next State of the Union. It is rumored that House Ways and Means chair Bill Thomas wants a big-bang package that includes comprehensive tax and Social Security reform.

Larry Kudlow — Larry Kudlow is the author of JFK and the Reagan Revolution: A Secret History of American Prosperity, written with Brian Domitrovic.

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