Drake-Nye Q&A: How would you restructure federal tax system?

EDITOR'S NOTE: This is the second of three questions The Virginian-Pilot posed to the candidates for the Second Congressional District, incumbent Republican Thelma Drake and Democrat Glenn Nye. Their answers follow.

U.S. Rep. Thelma Drake

President John F. Kennedy said, "The largest single barrier to full employment and to a higher rate of economic growth is the heavy drag of federal income taxes on private purchasing power, initiative and incentive." He was right.

Kennedy would be shocked at the complexity of the tax code and regulations today. It is 16,845 pages long with nearly 900 forms. Famously, a group of accountants was given the same set of facts and they each came up with a different tax bill. Americans are rightfully demanding reform.

Many people hire tax professionals or buy computer software just to file their personal income taxes. According to the Tax Foundation, "the IRS estimates Americans spend 6.6 billion hours per year filling out tax forms, including 1.6 billion hours on the 1040 form alone. Americans spend more than $200 billion on tax compliance. That amounts to 20 cents of compliance cost for every dollar collected by the tax system."

The federal corporate tax rate of 35 percent is the second highest in the industrialized world. Virginia's combined federal-state corporate tax rate is higher than France's.

Although Congress has passed thousands of loopholes and deductions to reduce the effective rate for many corporations, the inefficiency and compliance issues that are created by the corporate tax code reduce the competitiveness of U.S. businesses.

So, how would I restructure the federal tax system?

Congress should enact a flat tax with a rate around 20 percent of income. There are several plans, but most of them eliminate deductions and put an end to the double taxation of income that is saved and invested. Personal exemption and dependent deductions would be dramatically raised so that low-income Americans would pay little or no income taxes. Americans could complete their 10 -line tax form online or on a postcard and pay their taxes in minutes, not hours or days.

This plan is fair to all taxpayers. If one person makes 100 times more than another person, he will pay 100 times more in taxes.

The tax code would not punish those who save for their retirement. Income from capital gains that is saved for retirement would be free from income tax. The personal income tax rate would be determined by law and the deadline for taxpayers to file would be moved from April 15 to Oct. 15. Politicians would immediately recognize the importance of keeping taxes low if Tax Day were moved closer to Election Day.

For corporate tax rates, a flat tax works also. Ronald Reagan had it right when he said, "The federal government has cynically told us that high taxes on business will in some way 'solve' the problem and allow the average taxpayer to pay less. Well, business is not a taxpayer; it is a tax collector. Business has to pass its tax burden on to the customer as part of the cost of doing business. "

A flat tax rate on corporate profits coupled with eliminating loopholes would make U.S. companies more competitive with their global counterparts. It will encourage many U.S. corporations with foreign subsidiaries to bring jobs back to the country. This plan creates new American jobs.

In order to gain the support of the American people, our absurd tax code must be replaced with a flat income tax that is simple, transparent and fair while maximizing economic growth and job creation.

Glenn Nye

I have spoken to thousands of residents in the district who have expressed strong fears about their finances and the national economic crisis we are facing. The economy is in flames, and we must have all hands on deck to put out the fire as quickly as possible.

When the fire is out, however, we must take a serious look into what caused the crisis and how we can rebuild our economy in a way that prevents future emergencies. Reforming our tax code would be a critical component.

We already know one cause of this crisis: The people in Washington who were supposed to be enforcing our laws looked the other way while special interests and corporate executives were robbing America blind. You don't have to follow the money trail far to see why so many members of Congress, including my opponent, kept quiet and even voted against stronger oversight of the mortgage industry as this disaster was building.

Many of those same special interests have corrupted the tax system so that - just like the Wall Street scandal - they can walk away with billions and leave middle-class Americans with the bill. Thelma Drake has voted in favor of these special deals for special interests time and time again.

What does this look like in the real world?

When I was in Iraq, I met contractors who worked for a subsidiary of Halliburton that was set up on an island outside of the United States in order to get out of paying taxes. What did Washington do about this loophole? It rewarded Halliburton with billions of dollars in federal projects.

Halliburton is far from the only culprit. These special deals are unacceptable.

Our top priority right now is to make our economy strong again, so that we can keep taxes low while still providing for a strong defense and other essential services. In a crisis, we simply cannot afford to take more capital out of our economic system. For that reason, I would vote to extend the Bush tax cuts for all Americans and oppose an increase in the capital gains tax to spur the economic investment we need.

For the long term, we should shape our tax code to reflect our American priorities, in particular, strengthening middle-class families and supporting small businesses. I would work for a bipartisan solution to repeal the Alternative Minimum Tax, which threatens millions more families every year. I would push for tax credits for middle class families so they can afford college for their children and the significant increases in the cost of living that they are facing.

Finally, we have to address fiscal responsibility. Last year, Americans paid more than $400 billion a year in interest from the federal government debt - the result of years of bad policies in Washington. We need a simplified tax system and a plan to balance the budget so those dollars are going back into taxpayers' pockets instead of to foreign countries.