Op-ed in today's Wall Street Journal: The 0% Tax Rate Solution: It's Better Policy, and Politics, Than the Proliferation of Tax Credits, by Peter Ferrara (Institute for Policy Innovation):
The federal income tax code is now so mangled that we can probably increase federal revenues with a 0% income tax rate for a majority of Americans. Long before President Barack Obama took office, the bottom 40% of income earners paid no federal income taxes.
Because of refundable income tax credits like the Earned Income Tax Credit (EITC), in 2006 these bottom 40% as a group actually received net payments equal to 3.6% of total income tax revenues, according to the latest Congressional Budget Office data. The actual middle class, the middle 20% of income earners, pay only 4.4% of total federal income tax revenues. That means the bottom 60% together pay less than 1% of income tax revenues. …
But what if Republicans proposed a federal tax reform with a 0% income tax rate for the bottom 60% of income earners? With that explicit 0% tax rate framing the issue, abolishing the refundable tax credits that actually ship money to lower income earners through the tax code would become politically viable. 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.



