The Fair Flat Tax Act of 2007

Introduced by Senator Ron Wyden and U.S. Rep. Rahm Emanuel (D-IL), the "Fair Flat Tax Act of 2007" (S.1111) offers major tax relief for America’s middle class by making the 1.4-million word U.S. income tax code simpler, flatter and fairer. 

S.1111 would shrink the standard 1040 form from 77 lines down to 30 lines.  For individuals, the number of brackets is reduced from six to three: 15 percent, 25 percent and 35 percent, while a flat tax of 35 percent would be imposed on corporate taxable income. Wyden's legislation would eliminate the Alternative Minimum Tax (AMT).

Under the Fair Flat Tax Act average families with incomes of up to approximately $150,000 a year would get needed tax relief.  The plan triples the standard deduction, providing tax relief to most Americans, while saving them countless hours in tax preparation for most people who will no longer need to itemize their deductions.  It also ends the disparate treatment of work and wealth under the current tax code by getting rid of the preference for capital gains and dividends over wage and salary income.

Eliminating certain credits, deductions, exclusions and preferences – especially in the corporate code – makes it possible to provide real tax relief to the middle class.  The Fair Flat Tax Act does retain many of the individual credits, deductions, exclusions and preferences most commonly claimed, including: deductions for mortgage interest and charitable contributions, credits for children and earned income.  Additional preferences retained help our men and women in uniform, our veterans, teachers, the elderly and disabled, and help people pay for health care and higher education and build up pensions and retirement savings.  On the corporate side, the bill ends a number of tax loopholes and specialized tax breaks that favor business in one sector over another, while working to root out provisions that perpetuate inefficiencies in the health care system and to end the use of pass-through entities as tax shelters.

With a simpler system, it will be harder for people to cheat the system and easier for the Internal Revenue Service (IRS) to catch those that do.  Currently, there is a tax gap between taxes owed and collected of over $300 billion per year.  The Fair Flat Tax Act can make a significant dent in that, raising revenue from a source that won’t increase taxes.