Tuesday, November 24, 2009

Tax reform on the net

Just in case you might have been thinking not enough has been written about tax reform, Bruce Bartlett has assembled an impressive list (hat tip Ezra Klein). This is to get out ahead of a plan to simplify the US tax system expected to come from the White House next week.

This reminds me of an article (fee required) in the New York Times by Russell Baker back in 1985 about complifying the tax code in the reform act that eventually passed in 1986. That reform simultaneously added a bunch of new deductions and exemptions while removing a lot of existing ones and reducing the number of tax brackets.

If I were king, I would:

  • Eliminate the corporate income tax and replace it with a consumption-based value-added tax (VAT). Invite state governments to replace their sales and corporate income taxes with a VAT that could be collected on their behalf by the federal government and also collected on all internet purchases.
  • Broaden the base of the personal income tax and reduce the marginal rates by eliminating most deductions and exemptions from the personal income tax, including the home mortgage deduction and the medical insurance exemption, while simultaneously raising the standard deduction and the Earned Income Tax Credit (EITC).
  • Do away with separate treatment of capital gains and tax them like ordinary income.
  • Eliminate the income caps on the Social Security tax (FICA) and reduce the marginal rate.
  • Levy a carbon tax. This would include a rise in the gasoline tax to $2 per gallon, by 3 cents per month over many months, and use these revenues to reduce income taxes.

Piece of cake. Let's see what the White House comes up with.


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