How would you change our tax system?

If you were king or queen and could change the tax system today — Tax Day — how would you do it?

The super rich pay a lot less taxes than they did a couple of decades ago, Associated Press reports.

The Internal Revenue Service tracks the tax returns with the 400 highest adjusted gross incomes each year, AP writes. The average income on those returns in 2007 was nearly $345 million. Their average federal income tax rate was 17 percent — down from 26 percent in 1992, AP reports.

Over the same period, the average federal income tax rate for all taxpayers declined to 9.3 percent from 9.9 percent, AP writes.

The top income tax rate is 35 percent, so many people enjoy a variety of tax breaks, AP reports. There are so many breaks that 45 percent of U.S. households will pay no federal income tax for 2010, according to estimates by the Tax Policy Center, a Washington think tank.

How would you make it better?

Some advocate a national sales tax that would replace much or all of our income tax system, saying it will be much fairer. Everyone would pay the same percentage on the goods and services they buy.

Others say that such a system is regressive and unfair because it means low-income and middle-income consumers would pay a higher proportion of their salaries than wealthier consumers would pay. That would defeat the purpose of a “progressive income tax,” which is based on the idea that those with more resources can afford to contribute more for the overall good.

Is a worthwhile alternative to keep the current income tax system, but close some or all of the loopholes? If so, should there still be graduating income tax rates based on income?

What do you think?

- Henry Unger, The Biz Beat

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12 comments Add your comment

new tax

April 18th, 2011
8:49 am

flat rate income tax, no deductions, no credits, no exclusions, loopholes, preferences…. all income earned anywhere in the world by individuals, corporations… taxed at exactly the same rate. Very simple, very clean, very fair.

Donald

April 18th, 2011
11:27 am

I agree about the no deductions, no credits, no exclusions, no loopholes, etc. The only thing I would have is a graduated “flat rate” respective to income. Those below the poverty line have very little to zero tax liability. Those in the middle class have a certain percentage. Those in the upper class having the highest percentage. I’m not an economist so I can’t opine what those numbers should be that make up the middle/upper class threshold income and what their respective tax rates should be. Regardless, it seems to make sense to a middle class person like me to tax those who have more slightly more than those who don’t have as much. Then again, that’s easy for me to say since I am not in the upper class.

All I'm Saying Is....

April 18th, 2011
12:58 pm

Eliminate all deductions including sacred cows like mortgage interest. Move to flat rate of 5% for individuals and 15% for corporations. I predict huge surge in % tax compliance due to simplicity and ability to cut dollars devoted to IRS.

Use payroll related taxes to fund Social Security as is currently the case and add them to fund Medicare, Medicaid, and Head Start so we can provide a safety net for the old, poor, and young kids who had nothing to do with the situation they were born into (as otherwise they will become delinquents we all have to pay for).

Maintain tax on capital gains but cut it by 10%.

If add’l taxes required, make them be special 1% personal and/or corporate income surcharge taxes and mandate they all have a ’sunset’ provision without chance of renewal.

smk

April 18th, 2011
1:10 pm

I am not sure I know the answer; I like “All I’m Saying Is…” proposal. I am fine eliminating deductions if there’s a flat or fair way. If we didn’t have those deductions, we’d have had to pay $10K extra at the end of the year instead of the $3K extra we did have to pay. Our income isn’t that high so when I see a guy making $200K (different article) owing $2K in taxes total. . . something is not right. Flat tax or fair tax – doesn’t matter to me, but the current system needs to go. And the AMT needs to be thrown out the window. It only penalizes the people who already pay the most.

Christian

April 18th, 2011
1:17 pm

Completely eliminate the Earned Income Tax Credit immediately. $55 Billion every year paid out on the basis of what someone DIDN’T earn??? The governments job is not to directly redistribute wealth.

What ever!!!!!!!!!!!!!!!

April 18th, 2011
1:23 pm

Flat tax does not take into consideration the millions of illegals working in this county and paying nothing for the services they all seem to get. Therefore, I would have to veto the flat tax. Now the fair tax is a possibility. Everyone and I do mean everyone pays however the illegals that are floating on a free ride would not longer be the drain as they would pay and the services would be cut. They would also not be qualified for the prebate either as that only goes to working americans or immigrants who are here legally in our county.

This would cut out all income tax both state and federal and there would be no more IRS so that part of the government would end. It would put more money in peoples hands to live but create a grand amount of revenue and if our country then cant live on the tax money then we just need to start over.

IRS, Department of Education, Department of Energy are three parts of government I would end right away. They are not needed and have done nothing to enhance the areas they are a part of. I mean, what exactly has the department of education done to enhance education? Exactly. So from there I would cut spending and entitlement programs like this generational welfare system we have. Work or no pay. Thats my motto.

Truth

April 18th, 2011
3:12 pm

FAIR TAX !

Read the details and you too will be a believer.

Truth

April 18th, 2011
3:15 pm

10% unemployment, people want to work, then create the greatest tax haven in the world with the FAIR TAX.

FAIR TAX would generate more revenue to sustain the Liberal social programs and bring down tax rates for most taxpayers which would satisfy the Republicans. It would make EVERYONE pay into the system, even illegals.

Martha Snell

April 18th, 2011
9:01 pm

The fair tax is the only way out of this crazy system we have now..

higher taxes

April 18th, 2011
11:26 pm

The government needs to raise taxes on all the rich people getting away with all these loopholes and not paying enough tax. Minorities are getting shafted by the tax system–I’m tired of paying taxes when rich people pay little. Hopefully, obama gets tax rates up to 60-70% on rich people soon like he promised.

Kirk Gerard

April 19th, 2011
12:42 am

Engaging and well written article! This tops anything I have read lately on the subject at hand. I wonder if this’ll be posted on Twenty-First Tycoon. Although the site has awesome political, business, technology and real estate news, they could use more stuff like this. http://www.21Tycoon.com

TnGelding

April 19th, 2011
4:56 am

Let me count the ways! Too many to list here. Suffice to say it has to be simpler and less costly to comply with. The FairTax is simple but unfair. I could endorse it with some minor tweaking, mainly that savings previously accumulated used to make large purchases be exempt. It also reaches the underground and downright illegal economies that should bring in hundreds of billions of dollars.

What about a tax amnesty for those willing to come clean and pay up?