Of course that would mean no deductions (including deductions for charitable giving and mortgage interest, as well as the standard deduction), no credits (including credits for wind mills and solar power panels) and no loopholes (including tax free interest on municipal bonds). But isn't that a tradeoff worth considering?
Economists are almost unanimous about the economic benefits of such a change. An enormous amount of economic activity is nothing more than a response to tens of thousands of provisions in the tax code. Just imagine how much more productive and efficient our economy would be if we all made decisions based on economic advantages rather than tax advantages.
Mitt Romney is taking a step in this direction. Under the Romney plan , the corporate tax rate would fall from 35% to 25%. Individual rates would fall by 20% across the board. A family in the 10% bracket would pay 8% instead. A family in the 35% bracket would pay only 28%. Plus, families who earn less than $200,000 would pay no taxes on capital income (dividends, interest and capital gains). Romney would pay for these changes by eliminating unspecified deductions and loopholes.
Since the political season is also a silly season, this plan has been fodder for more TV commercials than serious analysis. The Obama campaign, relying on a report from the left-leaning Tax Policy Center, claims that the Romney would raise taxes on the middle class in order to cut taxes for rich people (like him!). A Wall Street Journal editorial this week rightly responds that the Romney plan would be good for almost everybody.
One study in particular projects that the Romney tax plan would raise GDP by 5.4 percentage points and create 6.8 million new jobs. Still, I think we can do better than that.