A zero percent income tax rate
Think tanker Peter Ferrara talks up an interesting idea in the WSJ:
But what if Republicans proposed a federal tax reform with a 0% income tax rate for the bottom 60% of income earners? … Trading an explicit 0% tax rate for the bottom 60% in return for eliminating the refundable tax credits would likely be at least revenue neutral, and probably result in a net increase in revenue. … Moreover, we should then be free to adopt sound tax policy for the top 40% of earners who make 75% of total income. Suppose we tax all of the income of those top 40% once with a 15% flat tax? That would be close to revenue neutral on a dynamic basis (i.e. counting work incentive effects). … All flat tax proposals effectively try to do the same through generous personal exemptions that are tax neutral for low- and moderate-income workers. But the explicit 0% rate would make the reform more easily understood. This — rather than adopting still more refundable tax credits as some conservatives are advocating — is also the way to eliminate the distorting tax preference for employer-provided health insurance. … The economic distortions caused by every other tax preference in the code would be minimized or eliminated entirely in this same way.
My spin: I would like to see a comparison on a revenue and tax efficiency basis of this plan vs. creating a de facto consumption tax by eliminating all taxes on savings and investment. But it is fascinating as a political framing device. I assume this would also get rid of education and kiddie tax credits, maybe even the mortgage interest deduction? Those would surely raise political hurdles.