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Zero Option!

November 11, 2010

20101111-1.jpgWhen the Soviets parked a bunch of SS-20 missiles in Eastern Europe, President Reagan countered by deploying U.S. missiles in Western Europe. But in addition to a stick, he offered a carrot: the "Zero Option," where both sides would clear all of their missiles from the continent. Conventional opinion derided this as unrealistic and a mere ploy. Ten years later, there was no Soviet Union.

The "National Committee on Fiscal Responsibility" issued a zero option of its own yesterday as one of three tax reform options to reduce the federal deficit. The "Zero Plan" is summarized as follows:

* Consolidate the tax code into three individual rates and one corporate rate

* Eliminate the AMT, Pease, and PEP

* Eliminate all $1.1 trillion of tax expenditures

* Dedicate a portion of savings to deficit reduction and apply the rest to reduce all marginal tax rates

* Add back in any desired tax expenditures, and pay for them by increasing one or all of the rates from their zero expenditure low

If no "tax expenditures" were added back, the plan would reduce individual rates to 8, 14 and 23%, with a flat 26% corporate rate. There would be no reduced rate for capital gains, greatly simplifying tax lives for most of us.

This is an excellent idea. I would only apply more of the savings to reducing rates and add a dividends paid deduction to integrate the individual and corporate systems -- a huge simplification. Nancy Pelosi isn't crazy about it, but her friends didn't like the first zero option either.

There is already plenty of discussion of the plan. The TaxProf has a roundup. Other blogs weighing in include:

Robert D. Flach
Tax Vox (Whether they want me to link to them or not).
Tax Policy Blog
Tick Marks
Iowa Center For Fiscal Responsibility
Kay Bell

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» The ‘Zero Plan’ Proposal from the Fiscal Responsibility Commission from Tax Planning: U.S.
The National Commission on Fiscal Responsibility and Reform issued a draft report summarizing three tax reform proposals designed to simplify the current tax system and reduce the federal debt. One of their proposals is called the Zero Plan. That tax r... [Read More]


I wonder who Speaker Nancy Pelosi's friends are that the author is referring to?

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