The current federal income tax laws are several thousand pages. The court cases that interpret how the law applied requires a small library. Minor changes (such as changing the level of tax brackets) will not significantly improve the nation's problems.
We reached this unreasonable situation, because most of the tax laws members of congress vote based on the interests of donors, rather than the interests of contributors (indirect bribery). The candidates for the 2012 US presidential election spent more the $2,000,000,000 (two billion US dollars). Some representatives and senators spend millions of dollars getting elected. The rich expect consideration for their spending.
The current tax laws collect less from the wealthy than from the middle class.
Current laws give large businesses an unfair advantage over new or small businesses. Besides special loopholes, Social Security premiums place an unfair burden on small businesses. People starting a new business pay %25 of their net income as Social Security premiums. Since new businesses are the heart of
The United states has a growing disparity of both wealth and income between the wealthy and the middle class (a 20% increase in disparity over the past decade, according to the widely accepted GINI measure).
Most important reforms
The reforms I am recommending originate from wealthy, conservative people (such as Malcom Forbes).
The most important reason for the increase in wealth of the wealthiest is that inheritance taxes have been largely eliminated. Gifts, trusts, and inheritance should be taxed as income. The giver would be taxed upon receipt of the income and the recipient would be taxed upon receipt (or withdrawal from a trust) of the funds. Gifts and inheritance between spouses should not be considered income. This is better than having a separate book controlling inheritance tax.
One of the goals of a progressive tax system is to minimize taxes on those living below the poverty level. Sales and property taxes are inherently unfair to the poor. Exemptions on income tax should be adjusted to about the poverty level. Charging a flat tax rate after exemptions and deductions should be a fair income tax.
Capital gains means money obtained from investments held for a minimum time (unearned income). Currently only 50% of capital gains are included in taxable income. Money invested in starting a business is not capital gains (another way the tax system discourages creation of jobs). The capital gains exemption should be phased out over a four year period.
The US must increase the "Safety net" to meet the standards of the rest of the civilized world (or even just the industrialized world). This can be funded without a federal tax increase by removing the cap on FICA (Social Security) premiums. Currently, 25% of net income up to $103,000 is is taxed, but income above the cap is exempt from FICA tax. Half of FICA tax is paid by the employer and half is paid by the earner. Removing the cap will provide enough money to fund Social Security, health care (including dental and other needs), and increased unemployment coverage. Removing the employer's portion of the FICA premiums will make it easier to operate businesses.
Businesses should be taxed based on the change in "book value" of the business, plus dividends, and the pay to the highest level of management ("C level"). Payment in stock options should not be permitted.
Other changesTax deductions other than the funds to pay for emergencies (disasters), direct employee costs, and charitable gifts should be phased out over the next ten years.
The homeowner interest tax deduction should be immediately eliminated. Rent, mortgage payments, and insurance premiums to protect health or possessions should be tax exempt for the primary dwelling and any unoccupied dwelling awaiting sale.
Any business incentives should be explicit contracts and divorced from the tax system.
Import duties must be protectionist. The wholesale price (including duties) of an item manufactured outside the US should not be below the wholesale price of the item manufactured (to the same standards) within the US (adjusting for the cost of raw materials). The same is true for services obtained from outside the US (including software and other non-physical products).