WASHINGTON - Here's some holiday cheer: 120 million American families no longer have to file income tax returns; the top individual rate is lowered by 20 percent; the top corporate rate is cut by more than half; the government gets the same amount of revenue; and the tax system is slightly more progressive.
OK, it's not a free lunch. It would be accompanied by a 12.9 percent value-added levy, which critics like to call a national sales tax.
This is the brainchild of Michael Graetz, a Columbia University law professor and former top tax official in the George H.W. Bush administration. He has refined his proposal, and the Tax Policy Center, courtesy of a grant from the Pew Charitable Trust, has analyzed it; the results should cause liberals and conservatives to take notice.
There is broad consensus that the U.S. tax system is inefficient, inequitable and hopelessly complex. The chairmen of the two tax-writing committees in Congress, Rep. Dave Camp, R-Mich., and Sen. Max Baucus, D-Mont., have worked diligently to craft a bipartisan overhaul.
It's going nowhere. The two chairmen won't be in their positions in the next Congress, and a 1986-style tax reform - broadening the base and lowering the rates - isn't politically achievable today.
Further, the conservative dream of starving government by slashing taxes and the liberal idea of paying for new initiatives by closing loopholes for the rich are nonstarters.
The Graetz initiative offers something for both sides. It starts, he suggests, with countering the observation once offered by former Treasury Secretary Larry Summers that liberals fear a value-added tax because it's regressive and conservatives fear it because it's a money machine. Graetz' measure overcomes both objections.
The professor argues that his VAT would make business more competitive and create jobs; it would be levied on imports, not exports. It would bring U.S. tax policy more in line with the 160 other countries, including every developed one, that have a VAT.
Graetz addresses the regressivity of most sales taxes, not by exempting food, drugs and other necessities as most of the older European systems do, but with a system of credits and offsets that follows the more modern models of Singapore and New Zealand.
He provides a payroll tax cut and expanded child-care credits focused on low- and moderate-income workers. Families making less than $100,000 would be exempt from any income tax that is progressive, with a top rate of 31 percent on incomes more than $600,000. (The top corporate rate would be 15 percent.)
Those on fixed incomes, such as senior citizens, he argues, would be protected from higher prices induced by the tax by cost-of-living adjustments.
The Tax Policy Center found that his proposal succeeds in raising the same amount of revenue as current law. If revenue is to be part of any longer-term deficit reduction, Graetz observes, the value-added tax or the income taxes could be tweaked. "Actually, this would put us in a better situation to address the fiscal crunch down the road," he says.
One of the many reasons the Baucus-Camp effort is doomed is that the differences between today and 1986 are much greater than any similarities. Almost three decades ago, lower individual rates were funded by higher taxes on capital gains and corporations. "There is no such pot of gold today," Graetz says.
As a realist with considerable experience in Washington, he recognizes the huge hurdles: Politicians still cite the 1980 Oregon House race in which Ways and Means Committee Chairman Al Ullman, a Democrat, was defeated after raising the possibility of a sales tax.
Graetz, when comparing his idea to the status quo or other options, relishes a political debate over the next several years: "These things take a long time."
Albert R. Hunt is a Bloomberg View columnist.