Tax Reform

Interesting ideas by Michael Graetz on how to reform taxes.

Enacting a value-added tax - a tax on sales of goods and services collected at all stages of production - at a rate of 14 percent would finance an income-tax exemption of up to $100,000.

Imagine a world of no tax returns for families that earn less than $100,000. Wealthier families, meanwhile, would face a vastly simpler income tax at a 25 percent rate on income of more than $100,000 after deductions for charitable contributions, home mortgages, medical expenses, and state and local taxes. Low and middle-income families would be protected from any tax increase by refunds of their payroll taxes.

This tax reform would eliminate more than 100 million of the approximately 130 million income tax returns filed each year. Unlike the flat tax or the sales tax, it would also keep income tax incentives for employers to provide health insurance and pensions to their employees. At the same time, the corporate income tax rate could be whittled down to 25 percent and, to eliminate corporate tax shelters, changes could be made to more closely link tax and book income.

I think I would get rid of the home mortgage deduction since it would only go to those making over $100,000. Why subsidize the purchasing of mansions?

And it would make for an interesting social situation. Income tax paying now becomes a sign of success. People would start bragging about how they have to pay income taxes.

via NY Times