GOP: Unearned Income Should Be Untaxed

If you didn't earn it, you shouldn't have to pay tax on it. This is the basic idea behind the lastest Republican approach to tax reform.

The proposal would end the corporate income tax and gift and estate taxes. It would also end all taxes on investment income. Under the plan:

Provides individual income tax payers a choice of how to pay their taxes – through existing law, or through a highly simplified code that fits on a postcard with just two rates and virtually no special tax deductions, credits, or exclusions (except the health care tax credit).

* Simplifies tax rates to 10 percent on income up to $100,000 for joint filers, and $50,000 for single filers; and 25 percent on taxable income above these amounts. Also includes a generous standard deduction and personal exemption (totaling $39,000 for a family of four).

*Eliminates the alternative minimum tax [AMT].

* Promotes saving by eliminating taxes on interest, capital gains, and dividends; also eliminates the death tax.

* Replaces the corporate income tax – currently the second highest in the industrialized world – with a border-adjustable business consumption tax of 8.5 percent.

So, everybody gets a new 7.5% value added tax, and deductions for items like mortgage interest, state and local taxes, charitable deductions, per child child tax credits, and earned income tax credit, which would be replaced with a larger standard deduction and personal exemption for a family of four.

The change would be dramatically regressive, shifting tax burdens from the rich, who have the lion's share of unearned income, to the middle class that spends a larger share of its income on consumables that the VAT would capture than those who have higher incomes.