Jan. 10 (Bloomberg) -- Republican presidential candidate Rudy Giuliani proposed a tax overhaul plan that would reduce capital gains and corporate tax rates and allow many Americans to file a one-page return.

The plan would reduce the corporate tax rate to 25 percent and the capital-gains tax to 10 percent. The current corporate tax rate is 35 percent, and the capital-gains rate is 15 percent, set to rise to 20 percent in 2010 as President George W. Bush's tax cuts expire.

If all of his proposals were enacted, ``It would be the biggest tax cut in American history,'' Giuliani said in an interview on Bloomberg Television.

Giuliani said he would explain in coming weeks how he will pay for the tax cuts. The plan will include a 5 to 10 percent reduction in spending at federal agencies, including staff reductions.

The proposal is ``a really bad idea,'' said Leonard Burman, director of the Washington-based Tax Policy Center, a research group.

``We're going to be running huge and growing deficits as the baby boomers retire. We're going to need more revenues not less,'' Burman said. ``We keep on kicking things down the road and hoping the deficit fairy will make it go away.''

Might `Make Money'

The tax cuts might just pay for themselves, Giuliani said.

``If you bring that tax down responsibly, you're going to make money on it because you're going to pick up more businesses,'' he said.

Burman said there's ``not a shred of evidence that they would pay for themselves.''

Chris Edwards, director of tax policy studies at the libertarian Cato Institute in Washington, said he admires Giuliani's ``grand plan'' because the tax cuts are consistent with the supply-side belief that lower tax rates spur economic activity and produce more revenue.

The former New York mayor said he wants to index capital gains for inflation, which would further cut the capital-gains tax burden. He also proposes to index the alternative minimum tax for inflation to limit its reach. The tax was created in 1969 to prevent 155 wealthy Americans from avoiding taxes through excessive deductions and exemptions.

``We are going to index it for inflation so it doesn't reach anyone else and doesn't hurt anyone else in the middle class,'' Giuliani said. He added that his ultimate goal is to do away with the tax.

``We should really get rid of it,'' Giuliani said.

One-Page Form

Wage-earning taxpayers would have the option of filing a one-page form that includes some popular deductions, a proposal advanced in Congress by Republican Representative Paul Ryan of Wisconsin. ``We believe that this will save middle-class taxpayers a lot of money,'' Giuliani said in the interview.

Giuliani also proposes eliminating the estate tax altogether, a longtime goal of Republicans. The estate tax raised $29 billion in 1999, according to the Tax Policy Center, a research group in Washington. The Congressional Budget Office estimated it would raise $400 billion from 2001-2010 before Congress passed a law that ratcheted down the tax each year until it expires in 2010. The estate tax is scheduled to return in 2011.

Tax Brackets

Giuliani's plan would reduce the current six tax brackets to three. There would be a 10 percent tax on income up to $40,000. Income between $40,000 and $150,000 would be taxed at 15 percent. A 30 percent tax rate would kick in at $150,000.

The Club for Growth, an anti-tax advocacy group based in Washington, praised the proposal.

``The mayor's plan dramatically lowers marginal tax rates at the personal and corporate level, which will encourage a significant burst of economic activity and growth,'' said Pat Toomey, the group's president, in an e-mailed statement.

Giuliani, 63, who finished fourth in the first-in-the-nation New Hampshire primary Jan. 8, is banking on contests in big states to ratify his Republican front-runner status in national polls. Florida Republicans vote on Jan. 29, and more than 20 states, including California and New York, hold nominating contests on Feb. 5.

``Florida counts,'' Giuliani said. ``It's a gate-opener to Feb. 5.''

In addition to the other changes, the Giuliani plan would also reinstate the research and development tax credit and make the Bush tax cuts permanent. Giuliani also wants to create tax- free savings accounts that could be used for education, retirement or purchasing a home.

To contact the reporter on this story: Christopher Stern in Washington at Cstern3@bloomberg.net.

Last Updated: January 10, 2008 15:41 EST