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. Last Updated: 07/27/2016

Kemp Panel Unveils Latest Flat-Tax Plan

WASHINGTON -- A Republican commission led by former Housing Secretary Jack Kemp called Wednesday for replacing the current tax code with a flat-rate tax system it said would be simpler, fairer and spark an explosion of stronger economic growth.

But the 14-member panel's report, billed as the vehicle to propel the issue of tax reform to the front of the 1996 campaign agenda, was long on laying out principles and short on specifics.

Although it advocated the adoption of tax system in which everyone would be taxed at the same low rate, the report dodged recommending what that rate should be. It called for a "generous'' personal exemption, below which income would not be taxed, but declined to specify what that threshold should be. And it avoided taking a clear stand on whether to continue existing deductions for charitable contributions or mortgage interest payments.

Instead, the commission raised a large tent, roomy enough to include the several competing flat-rate tax proposals put forth by leading Republicans.

The report's ambiguities were seen by analysts as a nod to Senate Majority Leader Bob Dole, the frontrunner for the Republican presidential nomination. Dole has positioned himself as supporting reform of the tax code, but is reluctant to embrace any specific plan, including the "flat tax'' promoted by publisher Malcolm "Steve'' Forbes, his fastest-rising challenger for the Republican nomination.

Dole -- who says he favors a "flatter'' tax system rather than a flat tax -- embraced the Kemp report gingerly.

House Speaker Newt Gingrich said the Kemp report marked the "beginning of the tax reform debate rather than the end."

The commission's final report, which came after months of deliberations and public hearings in cities across the country, fell well short of the specific reform proposals many GOP tax reformers had anticipated. Kemp himself stoked those expectations. "It wouldn't be a Jack Kemp commission if it didn't lay out a road map to major, dramatic, radical overhaul of the tax code,'' Kemp said in an interview last fall.

Like the flat tax plans put forth by Forbes and House Majority Leader Richard Armey of Texas, the Kemp panel called for an end to what it called the current tax system's bias against savings and investment by allowing businesses to take full and immediate deductions for new buildings and equipment and exempting investment income from interest or capital gains.

Senator Phil Gramm on Wednesday announced a flat tax scheme with a single rate of 16 percent. He would preserve the mortgage deduction, but tax investment income.

Unlike other leading flat tax plans, the Kemp group recommended that taxpayers get full deductions for payroll taxes for Medicare and Social Security. Kemp said such taxes were the heaviest tax burden for many working Americans.

Kemp also said he regarded making it easier for Americans to own their own homes "incredibly important'' -- comments that drew praise from the nation's real estate agents.

Kemp said the commission did not prescribe a specific tax rate to keep the debate from getting "sidetracked'' into a discussion about specific proposals. He said he hoped a tax reform plan consistent with the commission's recommendations could have a single rate of less than 20 percent and still not increase the deficit by lowering tax revenue.

At least one tax analyst, however, concluded that a flat rate might have to go to 25 percent or higher. "With all those deductions, I would imagine that you would need a rate so high that it would be shocking to most voters,'' said Clint Stretch, director of tax legislative affairs at the accounting firm of Deloitte & Touche.

"How're they going to pay for it?'' demanded Deputy Treasury Secretary Lawrence Summers when asked about the Kemp proposals "There's no such thing as a free lunch. ...The right thing to do is provide direct tax relief for middle-income families. But it is hard to react to a proposal that doesn't have any arithmetic behind it.''