It would encourage savings. Individuals would no longer pay tax on income from savings, capital gains, and interest income. It would provide a strong boost to capital formation and thereby stimulate the economy. It would reduce IRS staff and overhead and streamline tax preparation. It is a progressive tax with a flat rate on taxable income, however, the more an individual saves or invests, the lower his taxable income becomes, thus lowering his total tax payment.
Taxable income is defined as total income minus savings and investments minus a threshold income.
This would mean that nearly half of all households would pay no federal income tax under this plan. It is a simple tax that levies the same tax rate to all Americans regardless of taxable income, while reducing or eliminating income taxes for low income families. It would not eliminate the IRS, but would reduce its role. It would eliminate deductions for mortgage interest payments, a drawback for homeowners. It would eliminate deductions for charitable donations.