Subject: Fairness vs. simplicity vs. incentives Comment: I believe the concept of "Fairness" in the present tax code has been overemphazised at the expense of simplicity and incentives. This has resulted in complicated work sheets for dividends (so poor stockholders pay less than 15 %), phase ins and phase outs etc. The "fairness" concept is particularly questionable in cases where differences in income are due to choices : Moonlighting, working beyond age 62, 2-income couples etc. The tax code is so complicated that total repeal and replacement by a consumption tax (Fair Tax)may be best. I say this even though at age 75, I may be taxed twice when I consume after-tax savings. If the income tax is retained, the following changes are suggested : 1) The mortgage interest and real estate tax deduction is capped at some reasonable level ($ 12,000 total ? ) 2) Rich and poor pay the same rate (15%) on dividend income after a $ 1000 exemption 3) Social Security benefits for early retirement are reduced from currently 80% to 60% 4) The marriage penalty is eliminated in 2 steps : First ONE spouse is allowed to file as "single" (the other files as "married filing separately"), later BOTH have the option of filing as "single". This would eliminate the status "married filing separately", but retain "married filing jointly" as an option. 5) Medical tax breaks need to be sharply reduced. 6)Phase-ins and -out are eliminated. 7) Deductions for state and local income taxes are eliminated The thrust of my proposal has been to replace negative incentives with positive ones. For instance, there are 2 ways to escape the marriage penalty : Get a divorce or have one spouse quit his (her) job. While the religous right may lament the first approach, I am more concerned about the second one. Economic activity is the driving force of our society and taxing this activity is draining the liveblood from it, particularly when transfering money from people to earn it, to people who consume it ("make the other guy pay"). One last suggestion, not quite serious but more a discussion point is the "Zero Marginal Tax Rate" : It would give a taxpayer the OPTION to pay 110 % of the average tax he paid in the preceeding 3 years (instead of filing a tax return). Capital gains are taxed extra. Great simplicity : No return, no examination no audit. More importantly, the tax payer is now free to earn an unlimited amount of income, without paying any additional taxes. |