Our tax structure in this country is a debacle. Not only do we have high taxes, we don’t even really produce the tax revenue we expect from those high taxable levels because of all the holes in the system. I don’t think the average person realizes how broken the tax code really is.
The code must be simplified. I am not enough of an idealist to believe a flat tax will ever occur, but a flatter tax is possible. That goes for both individuals and corporations.
1. Simplification of the Tax Code
It will always be virtually impossible to get a flat tax; but we can get a flatter tax. Limiting income stratification to three different levels, say 10%, 20%, and 30%, would signficantly reduce difficulty in doing and obtaining taxes. Additionally, many deductions should be removed, and left with what I call ‘necessity’ deductions: Home, work, and health care. You need a home, and the mortgage deduction has benefits to the larger society. You need to work to live, so simple, straightforward deductions for operating a business or working at your job should stay. Finally, ultimately many people will have to pay for their own health insurance, and we must make certain that the government aids people in this.
2. Beware class warfare.
Class warfare is always a destructive force in any nation. What is happening in the U.S. today is not a good move. Progressively, less and less people are paying any federal income taxes. George W. Bush reduced the level to the lowest in history; around 40% of people now don’t pay federal income taxes; Mr. Obama will increase this number to 1/2 of all people in the U.S. Ultimately, this is a destructive policy. People that pay nothing toward the running of their own government have little invested in what that government does. Why should they care if the government runs huge deficits, if they are unlikely to be responsible for that money? I am not advocating taxing the poor. But there has to be a middle ground where all people in the country have a vested interest in how the country is run.
3. Business friendly tax code.
We currently have one of the highest corporate tax rates in the world, on top of the fact we have more business deductions than any other country. This is simply stupid. Again, we should simplify the tax code, while at the same time removing many of the thousands of various business deduction. We should retain deductions for losses, investments, and hiring. But random and sometimes irrelevant deductions should be removed. Ultimately, this may lead to an overall increase in tax revenues, while at the same time could reduce costs for businesses. How? Simplifying the tax code would signficantly decrease the costs involved in record keeping, accounting, and tax preparation, especially for small businesses.