David R. Henderson  

Steve Moore's Alternative Maximum Tax

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Last week, I credited John Cochrane for his idea of the alternative maximum tax. I pointed out, though, that there was a basic problem with his having it apply to all levels of taxation: federal, state, and local. Then I went on to make my case for an alternate maximum tax at the federal level.

It turns out that Steve Moore of the Wall Street Journal, and now the newly appointed chief economist at Heritage Foundation, came up with the idea in the 1990s. Here's how it would work:

Fortunately, these objections can be very easily trumped with one simple alteration to the flat tax. The feature that is missing from the flat tax is the right to choose. If some Americans don't want to give up the current system, why force them to? Why not allow every taxpayer to choose between the current income tax system or an alternative post maximum tax (MAXTAX) with a flat rate of 25 percent of gross income that could be filled out on a postcard return? Only one deduction would be permitted under the MAXTAX: a credit for the payroll tax paid--7.65 percent for a salaried worker and 15.3 percent for a self-employed worker.

At the end of his piece, Moore shows how it would be calculated.


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CATEGORIES: Tax Reform , Taxation



COMMENTS (3 to date)
Hazel Meade writes:

It's not that people want to choose their own tax rate. It's that they want to choose what other people's tax rates will be.

Maniel writes:

David,
Nice post. I like the idea because it 1) offers free choice, 2) is neutral regarding income, and 3) offers a transition path to the proposed (by Milton Friedman) negative income tax. Re my point 2: it does not favor “passive” income over income from work and thereby addresses the widely-misunderstood issue of “taxing the rich.” Re my point 3: the zero-tax point would be above the zero-income point (but this was not your central point and can be saved for another discussion).

Floccina writes:

For simplicity sake how about a progressive consumption tax. A tax payer could put all or any part of his income/money into a tax exempt account that worked like an IRA but with no cap, he would then pay taxes on the amount of income not put in the account and the amount withdrawn from the account.

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