The Thompson Tax

Senator Thompson has shaken up the tax debate in Republican circles with his proposal to erect an optional, two-bracket simplified tax system alongside our current arcane tax code. His two-bracket, lower-rate, broader-base system would be an improvement, as the Wall Street Journal noted yesterday in an editorial. The idea of making the simpler system only an option rather than a full replacement of the current code seems to be to parry political opposition with the argument that anyone who prefers the current system could continue to pay taxes under the current rules. The practical effect, however, will be to add yet a third tax system to a code that already includes two tax regimes — the regular tax code and the alternative minimum tax (or three, if you count the choice taxpayers have of either itemizing deductions or taking the standard deduction).

The Thompson idea's defenders respond that so many filers now use software like TurboTax that the calculation of which code would be cheaper could be done by a computer with little additional inconvenience. But if you don't know what tax system you are going to file under until you run your taxes at the end of the year, it makes financial planning nearly impossible, or all-consuming. If politicians aren't willing to spend the political capital to take on issues such as the home mortgage interest deduction or the charitable giving deduction, it only makes it worse to penalize taxpayers for the pusillanimity of the politicians by creating a parallel new tax system without dismantling the old one.