Image: Fred Thompson
Jason Reed  /  Reuters
Fred Thompson plans to extend Bush's tax cuts and simplify the tax code
updated 11/26/2007 3:12:57 PM ET 2007-11-26T20:12:57

Republican presidential hopeful Fred Thompson proposed an income tax plan Sunday that would allow Americans to choose a simplified system with only two rates: 10 percent and 25 percent.

Thompson's proposal, announced on "Fox News Sunday," would allow filers to remain under the current, complex tax code or use the flat tax rates.

Asked whether the plan would cut too deeply into federal revenues, the former Tennessee senator and actor said experts "always overestimate the losses to the government" when taxes are cut.

"We've known for years any time we have lowered taxes and any time we've lowered tax rates, we've seen growth in the economy," Thompson said.

Thompson added that money would be saved by his Social Security reform plan. He proposed that workers younger than 58 receive smaller monthly Social Security checks than they are now promised. Individuals could contribute 2 percent of their paycheck to a personal retirement account, an amount that would be matched by the Social Security trust fund.

The retirement plan "faces up to the fact that Social Security is going bankrupt and we're going to have to do something about it," he said.

Thompson proposed permanently extending tax cuts enacted in 2001 and 2003, reductions that would end after Dec. 31, 2010 unless Congress acts. Republicans Rudy Giuliani, Mitt Romney and John McCain said they also would extend President Bush's tax cuts. The Congressional Budget office has estimated it would cost the government $2.3 trillion from 2008 through 2017 if the expiring cuts were extended.

Romney said he would eliminate taxes on interest and dividends for families earning less than $200,000 annually.

Key aspects of Thompson's tax proposal:

• The choice of filing under the current system or a flat tax rate of 10 percent for joint filers with an income of up to $100,000 - $50,000 for single taxpayers; and 25 percent on income above these amounts.
The standard deduction would be more than doubled to $25,000 for joint filers and $12,500 for singles. The personal exemption would be increased to $3,500. A family of four would be exempt from income tax on the first $39,000. The simplified code would contain no other tax credits or deductions, and retain the 15 percent tax rate on capital gains and dividends.
• Preserving the $1000 child tax credit, which was doubled from $500 per child.
• Protecting marriage penalty relief.
• Retaining education tax incentives, including Coverdell Education Savings Accounts, 529 college savings plans, and deductions for higher education expenses.
• Permanently repealing the estate tax.
• Eventually repealing the Alternative Minimum Tax, a separate system created 30 years ago to ensure that a few high income Americans could not use deductions and credits to eliminate their tax liability.

Thompson also would index the exemptions annually so that millions of middle-class families would not be subject to the tax.
House Democrats earlier this month pushed through an $80 billion bill to block the spread of the tax. The White House and Republicans, protesting tax increases in the bill affecting mainly investment fund managers, maintained that it would never become law. Bush supports relief from the tax, but promised to veto any bill that raises taxes as a condition of fixing the AMT.
• Reduce the top corporate tax rate from 35 percent to no more than 27 percent.
• Permanently extend small business expensing of equipment and other small business items.
• Update and simplify depreciation schedules.

Copyright 2007 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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