We Need a New Tax Code

Our federal tax code is broken. We pay a variety of stupid taxes and subsidize a whole industry (read H&R Block) just to figure it out. The federal tax code needs to be simplified so we can do as Gov. Mike Huckabee says: "Fire the IRS." A few examples of stupid taxes are below, followed by a few possible fixes.

We are paying a tax on our phone bills for the Spanish-American War from 1898! That war was paid off within a decade or two, yet we are still paying the tax because taxes are like crack to Congress... just one hit and they're hooked.

Taxes don't stop when you die. We pay an inheritance tax on estates over $1 million. This tax was instituted to help pay for World War One. WORLD WAR ONE! (See www.deathtax.com) It has stayed in the tax code ever since and has destroyed many small-to-medium family businesses. By the way, the people who write the laws also write exemptions into it for themselves with non-profits, etc. This is how the Kennedys keep their fortune from one generation to the next.

Married couples pay more in tax than two single people living together. This discourages people from getting married. With tax rates on the rise, this situation will get worse. Don't we have enough illegitimate children in the world (Be a man and get married LeBron.)?

How do we fix this stupidity? First, throw the entire tax code in the fire and start from scratch.

What do we implement in its place? Some, like Alan Keyes, prefer to go back to import duties and tariffs. This would get rid of individual and corporate income tax completely. In effect, we'd pay a sales tax on imported goods and services. I disagree with this approach because other countries will do the same to us and our goods and services will suffer abroad.

Others, like Steve Forbes, suggest a flat income tax. The flat tax would be around 15% with no exemptions (or maybe one for a first home mortgage). Apparently, the flat tax is working wonders in Russia because its harder to dodge taxes. The flat tax is an equal burden by all in terms of percentage, but not in terms of impact on lives. The poor wouldn't have a larger burden, but the flat tax would have a disproportionate impact on their lives.

Finally, some people (like me) advocate a consumption tax. It rewards those who save/invest their money and tax those who spend lavishly. This can be done in one of two ways. One way would be to add a tax at the checkout counter, say 15%. This would be the easiest way to ensure everyone pays the tax. I wouldn't tax food or some standard household goods like toilet paper, etc. It would be up to corporations to keep track of and pay the tax to the government. This may mean we have to end the relatively tax-free nature of the internet.

The other way to implement a consumption tax is to have a form where you report your income, take off a standard deduction for your family size (takes care of food, etc.), report what you saved/invested, and the rest is what you consumed. This could be done progressively so the people adding a new wing on their mansions to house their car collection will be taxed at a higher rate than those of us just trying to get by. A decent explanation can be found here: http://economistsview.typepad.com/economistsview/2007/10/robert-frank-we.html

Of the two ways to implement a consumption tax, the first seems to be the easiest to implement... at least for individuals.

Please share your thoughts.