Posted: Apr 25, 2005 By: Michael L. O’Leary

Subject: Proposal for Comprehensive Tax Reform

Comment: Proposal for Comprehensive Tax Reform
(Request for Comments #2)

1. Adopt a California style sales tax with a rate of 9%.
2. Continue with current income tax rules and schedules for individual filers, with the exception of raising the standard deduction to $29,000 for married filing joint, and with similar increases for other filing statuses.

I see a complete tax overhaul as politically impossible, so I offer a moderate proposal that incorporates the progressiveness of the old system with the inclusiveness of a consumption tax.

I have heard that if all taxes due the federal government were collected there would be no budget deficit. Therefore it is important to implement a tax system that collects revenue in two separate ways, earnings and consumption. A consumption tax will reach people who make significant income through tips, under-the-table work, or illegal business means. Yet, a 9% sales tax will only amount to a few hundred dollars of tax to most Americans, and it is easily adapted to businesses since so many states already collect consumption taxes.

By increasing the standard deduction up to the level of the median AGI, only half of Americans will owe any income tax, and very few will file a Schedule A. This will dramatically reduce the amount of time, expense, and energy Americans spend doing taxes, while also limiting the creative accounting found on many deduction worksheets. I do not believe that the income tax code affects how charitable most people are, and I believe that increases in home prices offset a homebuyer’s mortgage interest deduction. Reducing the tax consequences of both these deductions should not have any negative long-term consequences.

I have not heard any discussion about a hybrid plan of this nature, so I hope you will consider this option and then adapt and implement as you see fit. Thank you.