Tax reform
The necessity of tax reform is widely recognized. However, it is not trivial to replace the existing very complicated system with a simple system without essential redistribution of taxes. Happily, we are living in the age of computers and this helps. I am suggesting a very simple idea: to replace income tax with a transaction tax. This idea is not new: consumption tax is an example of transaction tax and there are people that think that one should use a national sales tax instead of income tax. This is an attractive suggestion: no hassle with tax forms, no cheating, everything is so simple that IRS is almost unnecessary. However, the existing system is progressive: the tax rate for the rich is higher . This means that the affluent people will be the main beneficiaries of the shift to sales tax.
I am suggesting to tax at the spot all transactions, not only sales. The tax rate should depend on the type of transaction and (for some types) on the annual income of taxpayer. The taxpayer should declare the expected income at the moment of transaction if he does not want to be charged with maximal rate. At the end of the year IRS computers will make corrections if the income is lower or higher than expected . (Another possibility is to use the last year data in calculation of tax.)
Of course, most of transactions are sales; in most cases the sales tax should not depend of income. (One can
take into account the income in indirect way taxing luxury goods with higher rate.) The number of transactions that should be reported to IRS will be relatively small; most of these transactions are reported to IRS anyway on various forms like W2, 1099, etc.
The transaction tax is very simple for taxpayer. It can take into account all existing deductions (technically this is simple, but, probably, it is reasonable to leave intact only the mortgage deduction ). Even without deductions the tax rates can be structured in such a way that in average people from every income group pay approximately the same tax as today.
Tax evasion will become more difficult (although there is no doubt that crooks will find some ways to cheat).
Probably, most of cash transactions will not be reported, but they escape taxation also in the existing system.
It is important that the tax base will become bigger (both income and consumption will be taxed) and this will lead to smaller marginal tax.
I am suggesting to tax at the spot all transactions, not only sales. The tax rate should depend on the type of transaction and (for some types) on the annual income of taxpayer. The taxpayer should declare the expected income at the moment of transaction if he does not want to be charged with maximal rate. At the end of the year IRS computers will make corrections if the income is lower or higher than expected . (Another possibility is to use the last year data in calculation of tax.)
Of course, most of transactions are sales; in most cases the sales tax should not depend of income. (One can
take into account the income in indirect way taxing luxury goods with higher rate.) The number of transactions that should be reported to IRS will be relatively small; most of these transactions are reported to IRS anyway on various forms like W2, 1099, etc.
The transaction tax is very simple for taxpayer. It can take into account all existing deductions (technically this is simple, but, probably, it is reasonable to leave intact only the mortgage deduction ). Even without deductions the tax rates can be structured in such a way that in average people from every income group pay approximately the same tax as today.
Tax evasion will become more difficult (although there is no doubt that crooks will find some ways to cheat).
Probably, most of cash transactions will not be reported, but they escape taxation also in the existing system.
It is important that the tax base will become bigger (both income and consumption will be taxed) and this will lead to smaller marginal tax.
posted by Republican-against-Bush at 10:31 PM
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