I'd get rid of the mortgage interest deduction - it disproportionately benefits higher-income earners who buy more expensive homes. I hear realtors use as a selling point to buyers, but only about half of homeowners can claim the deduction. The deduction was supposedly enacted to encourage homeownership, but all it does is encourage people to buy more expensive homes.

It's not exactly a change to the tax code, and it would probably never happen... but I would enjoy it if I saw a breakdown of _exactly_ how _my_ tax dollars were used. It would be pretty exciting to find out I "bought" a Kevlar vest to assist the Detroit SWAT team, or maybe it would be fairly boring to find out I "bought" new light bulbs for some street lights in some small town in Kentucky. Or maybe I would be angry that my $2000 in taxes this year bought 2/3 of a first class plane ticket for some senator to fly to a meeting in support of a topic that I disagree with.

In a similar vein, a tax code change I would like to see would be along the lines of keeping maybe 75-90% of your taxes split among the standard roads, education, law enforcement, etc., with the remainder going to "your choice" - whether it was local road repair, student loan subsidies, or whatever. I would just be happy being able to _not_ check a box supporting a war for oil :)

Flat tax and no write-offs. Two tiers, 7% for individuals earning under $100,000, and 13% for individuals with incomes above $100,000.

Too bad none of us, nor our Grandparents, are old enough to know what not having a tax was like!

Our country was founded with NO INCOME TAXATION! Our government raised taxes via tariffs on imported products and other non-direct taxes.

In fact, I'd be willing to bet that virtually nobody who is receiving the "economic stimulus" payments is angry about it, and they should be.

Please allow me a minute to explain this to the lay person:

Hi, I'm Joe. You are going to pay me protection money from your check.. in fact the better you do at your job the more I'm going to take from you. In fact, I think I'll take so much that you'll work the entire first quarter of the year just to pay me. Every penny for first 3 months belongs to me from now on. If you don't pay, I'll send in the IRS, he's a good friend of mine and he comes with his best friend Mr. 5-0.

Later that year... oh hey again my citizen! Yeah, I blew all your money on things we don't need and now our fair country isn't doing so hot. The vast majority of the problem was caused by me.. but never mind that. Now, if you are one of the poor people I collect from well I'm going to betray Mr. Robin Hood and take from those that did pay me and give you some of their money. That's because I KNOW you don't save your money or even invest it and thus leads me to believe you will blow it. So, here is $300, $600, or more dollars from the richer folks so you can blow it on stuff you probably don't need anyway. That way, I'll collect the tax money from what you buy anyway and again that money will belong to me.

I know, you're super happy cause I just gave you "FREE" money, but that's only because you BELIEVE it's free. It's really your money, or the richer guys money, but nobody will know. After all, our education system is in ruins and most of our kids can't spell or barely read. How could they even guess I'm giving them back their own money. HAHA

I like the spirit of our progressive income tax system, but I think it's become far, far too complicated and bogged down in details and special cases.

I would reduce the number of tax brackets to three. The lowest bracket would correspond to the poverty line and be taxed 0%. The upper bracket would correspond to a "luxurious" lifestyle, maybe something like $75k per individual. This income would be taxed at a higher rate. There are no deductions, exemptions, deferrals, etc. Wages, interest, capital gains, and any other income are all treated as "income". Everyone files individually. Anyone with a high school diploma could do their taxes in about 15 minutes.

All the various deductions and exemptions are well-intentioned, but at this point a "regular working joe" gets covered by roughly the same levels of tax advantages throughout their whole life: 1) don't make enough to pay taxes, 2) in college, 3) saving for retirement, paying mortgage, paying student loans, have kids, 4) retired and living on capital gains. I'd rather just drop all the special cases and save us and the IRS all the time and money it costs to figure all that out.

I would freeze the current system and set a timeline, like 20 years, to phase in the new system. Next year you would fill out both forms and pay 95% of the old number and 5% of the new number, and the blend would shift until we're using the new system 100%. Otherwise I'd be concerned that we'd "shock" the markets by encouraging people to reinvest all of their assets in the same year due to the new rules.

A flat tax would cripple the lower and middle income citizens, and is an awful idea. The fair tax is a very neat idea, though it may do bad things to our economy. A progressive system is probably the *best* system, even though it's flawed. What I would like to see is a vast simplification of the tax code. It's so ridiculously complicated today that one needs a college degree in economics to understand it.

I can't help but think that simplifying things, removing many deductions, while lowering the overall tax rate, would be a better system. Same net revenue ( roughly ) with MUCH less hassle and BS.

I would simplify the calculation of the Child Care Credit, and allow the mortgage tax deduction to be taken without itemizing. You'd see way more than 50% of eligible taxpayer benefiting from the deduction.

where do I start...our taxation system and tax code is ridiculous. 60,000 pages of code to pay taxes??

can't we just have a set number (we can all debate that amount/percent) that is taken from our income whether it be gross revenue or wages, and that is the tax we pay then we don't even have to file our taxes? It would already be done and the w-2 would show what you paid in taxes!

Either that or a consumption tax. Food and fuel exempt from consumption tax. You buy that plasma or hummer, you pay the tax. Let the wealthy who flaunt their wealth pay for it and let the wealthy who live a conservative lifestyle keep more of their wealth.

My wife and I are what some would call (or the tax code) would call "wealthy" (by tax code standards) and tax season is just a pain in the rear. I would gladly pay more taxes in exchange for my time that is spent dealing with it (and yes, I have paid someone to do it and it was still a pain).

Now, the ineffeciency of government and how those tax dollars are used is a whole other topic that angers me, but at this point if you are going to waste my money at least stop wasting my time......

Well, if I can't have a flat tax or a simpler tax code, I would like to at least be able to write off my student loan interest. The reason I make enough money so as to not qualifiy for the deduction is because I have a MBA, which I financiced with - you guessed it - student loans.

Repeal all 5 billion lines of tax code. Do you guys really like paying taxes or something?

I finished reading the second FairTax book which discusses arguments against it. Everyone should read this because it helps you to further understand how this bill works and how those who stand to lose the most from its passage will argue against it. Whether you hate the bill or love it, you gain by learning and arguing from an educated point of view.

The 16th Amendment was originally passed in 1913 as a FLAT TAX to plunder the extremely rich in this country which numbered not even in the hundreds. The AMT was originally written in the 1960s to punish less than 1000 taxpayers. Now those who want to run our country want to raise taxes again on the 'rich'? Any attempt to punish the 'rich' will eventually come back to haunt every who is not 'rich', i.e., you and me. I don't buy the idea that the Flat Tax will be better because it's already been done. (Boortz, et. al.)

I'm a huge FairTax fan. Take-home pay is a thing of the past and 'gross income' just becomes 'income'. No income, payroll, SS, Medicare, Medicaid, capital gains, estate, etc. taxes of any kind. That means all income tax deductions are gone; why would you need an income tax deduction when no income tax is collected? Corporate taxes are completely gone. Can you imagine what will happen to business activity and jobs in this country if CEOs learn that they have no taxes to pay in this country?

I couldn't believe this when I first read it but it's true. All government activity can be financed through sales taxes on NEW goods and services upon purchase for end-user consumption. This can alleviate many current social problems. Why worry about illegal immigration if they're paying their fair share of taxes yet do not receive a prebate due to US government registration requirements? Wouldn't an illegal immigrant likely be deported if they 'registered'? Why worry about top-level drug dealers and their income? Many earn a large income so they're likely to spend very heavily and contribute more in taxes without knowing it. They all have to eat, clothe themselves, and live in a house somewhere in this country? All of those activities would have a sales tax component that is visible to you on each purchase of NEW goods/services. You see and control how much you add to the government's coffers on each purchase you make. If that's not enough of a reason to live frugally, I don't know what is. I would argue that if most people take home a larger income, they are likely going to spend MORE MONEY rather than save it. I would definitely save more but I want to spend some of that windfall once on something nice.

These are just some highlights that I like about the FairTax. Keep in mind that I have not discussed all of the components of the FairTax and I highly suggest a reading of Boortz, Linder, et. al., or the actual FairTax bill to get a more detailed picture.

RE:#11 I completely agree with Stan. I believe the fair tax can alleviate many of our country's budget issues. I admit this is not a perfect system. But then again, what system is? I strongly encourage anyone to read more about the fair tax.

... by doing away with it entirely.

But I would never accept a post where people were forces or obligated to do what I said.

Why is everyone on here (minus Stan) so into punishing the rich with a ridiculous tax rate? I only make in the 50's, so I'm not in the "rich" bracket, but I just don't understand the mentality of, "you make more, so you should pay double the percentage that I do..."

Everyone complains about the rich but they are the only ones that pay for stuff in this country! The poor are handed tax-free social checks, and the middle-class have multiple deductions lowering their tax-rate dramatically.

consumption tax, all the way. charge people who spend, stop milking us who try to be responsible.

and as long as we are changing things, stop handing money out to bums and stop the wars (iraq/afghan/drugs)

maybe we will be in a better place before this all collapses. can we get some economists or something else in charge and not all rich lawyers?

@Mike L

Don't you know? "Rich" people are evil! Anybody who is rich must have done something immoral to achieve their wealth. That's the only possibility. It isn't possible that they have a unique skill set that is in high demand, or developed a product that benefits millions of people. Nope, wealth comes only from pure evil. The people who are incapable of taking advantage of the enormous educational opportunities in this country, and have not improved themselves to the point where they are able to contribute to society and be compensated accordingly are the ones to be revered. The people who pay for all of those people's services definitely should be punished.

BTW, the same is true of big, successful companies as well. If a company has done well, it does not mean that it has been pleasing its customers so much that they continue to return and buy/use their products/services. It means they are behaving unfairly. We should punish them too.

@Kevin

75,000 should be the top tax bracket that qualifies as a "luxurious" lifestyle, with no exemptions or deductions!? I'm not sure where you live, but for most people that is definitely middle class. Many public school teachers make more than that. Too me that isn't quite high enough to warrant being punished yet. It's not quite to the evil level. I wonder where you got the number 75,000 from? Did you come up with that on your own, or did you borrow that from a well known presidential candidate that made the same statement? For the record, I'm slightly below that line as well.

I hate people with the mentality that the government is somehow doing you a favor by letting you keep more of the money that you earned.

Where to begin? Having done hundreds of tax returns (from the destitute filing solely to claim the Earned Income Tax Credit to the zillionaire disgusted at the check he'll have to write), I am consistently and utterly amazed at one fact, thus far not raised (best I could see) in this discussion:

Payroll taxes (Social Security and Medicare).

When the government tells you that half of Americans aren't paying any income taxes, they are talking about income taxes. But one of the reasons pay doesn't go as far as it could is due to the fact that you're losing 7.65% (a flat tax, to be sure) off the top. That's not counting the other 7.65% your employer is chipping in. If the payroll tax wasn't around, you'd get a 15% raise without any additional cost to your employer.

Is it a separate taxing system? Yes - but only for collection purposes. As we all learned a few years ago, there is no lock-box. For years, the excess money collected over benefits paid out has been spent on other governmental expenses.

In order to really help people with their tax burden and have a truly productive national discussion, we must talk about all the taxes that are taken from their pay checks; not simply those we choose to call "income taxes."

I read Fair Tax and it was a good starting point. I would love a pure consumption tax code. Buy new and you pay a tax, buy used and you don't. The market would even out prices. A 1 year old car wouldn't be a whole lot less than a new one w/ tax - market prices. Ditto on houses.

I also hate how the income tax is structured to penalize earners. Mu husband makes a very good salary. I don't mind paying taxes on it. However I quit my low-paying job in my low-paying profession cause after taxes I was bringing home very little. Basically I am being penalized because my husband makes a large salary. So I'm encouraged to not work and have my 2 master's degrees sit at home. In a consumption based tax folks are encouraged to work and prosper because their work is not taxed - their desires are taxed.

@Michael

This is what makes the fair tax so great. There would be no more payroll taxes of any kind. People would get to take home what they make. On top of that you would receive a check every month that would compensate for your spending up to the poverty line. This means poor people would pay no taxes. Just as you pointed out this would be an automatic 7.65% increase to employees and a 7.65% to employers. The self employed would see an immediate 15% increase in pay. I recommend everyone read the fair tax book. Even if you do not agree it is an interesting read.

http://www.fairtaxcalculator.org/

Check that out.

I agree with the fair tax though. The more you spend, the more you pay.

My choice would be to do away with the income tax and enact a national sales tax of X% on all goods and services. Add a value added tax for certain high value goods such as they do in many European countries. States/counties/cities can add what is necessary for their necessary revenue.
There would be two major advantages this type of taxation. First, everyone would pay equally regardless of income. Second, everyone would pay tax. Visitors/tourists, illegal immigrants, foreigners working in the U.S would all still pay the same amounts as citizens. The extra revenue from goods purchased by the 11 million plus illegal immigrants alone would be significant.

@David B: Keep in mind that one of my "wishes" was that everyone would file individually, so a two income household would still be in the middle bracket up to $150k. I pulled that out of my head while I was writing the post. Maybe $100k or $150k would be more appropriate. I just made something up to make it concrete.

Question for the fair tax advocates: the new/used distinction seems like a huge loophole. Seems like I could incorporate a corporation, and any time I need something, have the corporation buy it tax free, then sell it to me "used", and I would avoid all taxes. Or similarly, someone like Amazon.com could "use" everything in their inventory to avoid charging the tax. Is there a mechanism to prevent this?

I have four suggestions for improvements to the tax code:

1. Abolish the AMT. Now it only serves to penalize middle-class workers in high-income/high-cost states.

2. Fix the marriage penalty. My husband and I pay slightly more in taxes because we're married and don't have children.

3. Remove the cap on student loan interest deductions. If we were single, we could both deduct our student loan interest, but the cap means that only one of us can. Also, we live in a high-cost state. We both have higher degrees, but his came at a steep cost. Because of these degrees, we have good incomes, but pay more in taxes and more in student loan payments to earn that pay. Basically, we'd probably be better off working low-salary jobs and not having student loans, but then we wouldn't really be helping the economy grow. We're caught in a catch-22, and the student loan interest cap only makes it worse.

4. Simplify the childcare deduction. Let parents deduct the whole amount, not a fraction of a fraction of the cost up to a max.

Flat tax. I'd make all income taxable at the same rate with a larger standard deduction and a very tiny handful of additional deductions for specific situations. You should be able to fill out your tax return on a postcard.

I like either a flat tax with no deductions or a consumption tax, although I don't like the fair tax. The whole prebate thing ruins its simplicity.

Gotta say I'm a fan of a flat tax. As Trent said you should be able to fill out your tax return on a postcard. I think we need to have more education as part of high school to explain how the tax code works. So many people haven't a clue. Instead the system is now: for the first part of your life you don't owe any tax, then your parents take care of your tax return, then you move out and H&R block takes care of your tax return. No where in there do you ever learn about taxes.

There's a lot of class envy coming through this thread and I'm offended when I read "luxurious lifestyles" or "ordinary Joes."

I believe that we all feel the same about our living standard regardless of what we earn. We want to at least maintain it or notch it up a little. The angst that I feel about keeping what I've worked for is similar to yours and is similar to Warren Buffet's.

Policy should proceed from that fundamental understanding and we should not attempt to shift the tax burden onto the other guy.

Furthermore, I think elected officials should have tools to encourage economic behavior that will foster the greater good. If we determine that saving is to be encouraged then there should be some leverage available like tax sheltered savings accounts. Or, if spending is key to a vital economy, then the tax code can be used to encourage that.

I know I'm begging the question about what changes to make but we should talk about what we're aiming for before we go about establishing policy.

Fan of fair tax or flat tax? It's still a tax! We don't NEED taxes and people shouldn't be forced to pay them. If you want to give money to the government, fine. But it doesn't seem "fair" at all to threaten people and take their money without consent.

I just can't believe people enjoy paying taxes. How many people really agree with everything the government does with your money?

Does everyone here like continuing to pay for the war on iraq/drugs/poverty? Think of what you could do with a 30-60% boost in your income.

The "greater good" is a lie.

@James

I agree with some of what you say in principle, but disagree in some ways as well.

I believe that the amount of tax revenue collected by the government should be drastically reduced, but I also recognize that the government needs money to operate. Even though I oppose the single largest expenditure of our federal budget (which is social security, by far), I do not oppose the collection of my taxes altogether. I think that most people agree with many of the services it provides such as roads, law enforcement, fire departments. Are you in favor of pay-as-you-go roads? I'm not being antagonistic, I'm genuinely curious, some people are. But to say that we don't need taxes at all is a bit extreme to me. At the very minimum, we need a basic framework to enforce property rights and settle disputes.

I do agree that individuals can spend their own money more effectively than the government, and believe that there should be fewer government programs for this reason. As you say, the government will never spend money the way everyone wants it to be spent. Since you can't please everyone, it would be better to let them choose more things for themselves (choice and competition in education is one example that I believe in).

Also, in regards to your "greater good" comment, I study constitutional law, and believe that the "promote the general welfare" clause of the constitution is grossly misunderstood. However that is another topic.

I absolutely LOATHE the social security and medicare taxes. I wish I could check a box on my w-4 and say "no thanks, I'll save my own retirement fund" and then, as long as I truly do save the same or more as the govt takes, I wouldn't have to pay it back. I don't trust social security to be around when I am ready to retire (I am not even 25 yet) but I hate just having to write that off. I don't expect it to take care of me, so why should I have to pay for it now?
I do think that the govt needs money to operate. But I hate the waste. $600 for a hammer? Better be a dang good hammer. I think that public schools need to be improved dramatically. I like having smooth roads to drive on. Welfare is a necessary evil, but should be much stricter as to definitions of not being able to work. Lazy is not an excuse.
I don't mind paying taxes on my income or on my goods, but I hate that they take it from both. I don't really care either way, so long as it is fair. We made $50k last year, but because we worked 5 jobs between the two of us. Taxes either need to be simplified, or take more things into consideration- like debt ratio or mortgage payment compared to income. We didn't but a super huge house, it's all we can afford. ($130k if you are interested, 1200 square feet) and my husband is in school. That to me should mean less taxes being paid, because we need more to survive. Either take less of my money in taxes so that I can pay for school myself, or give us grants to make up for the taxes being taken.
I don't know that there is one single simple way to make it work. Those with the access to good tax people will continue to find more loop holes than those who don't have access to them. That's the way it is regardless of income.

Anyone who makes more than I do should have to pay it all in tax. That would be the threshold. I mean I work long hours. Besides they probably use more public services than I do with their SUVs that destroy roads and their 5 shower head showers running so much water through the pipes. That way it would be fair, if we all got to have the same amount of money.

@David

I didn't say the government shouldn't have money. There were tariffs before the 16th amendment. The government operated for over a hundred years without taxes on everyone.

I'd be OK with pay-as-you-go roads as long as I wasn't paying taxes up front for their construction. It'll certainly be more inconvenient, I'll grant you that. I'm sure technology today would make it very easy to pay for driving on a road. After all, if it's convenient to pay and use, you'll use the road more and the owners will make more money.

You'd think with $3,000,000,000,000.00 you could make a lot of people happy. What's congressional approval at now? Is it above 20% yet? It doesn't matter the size of the federal budget, so few people shouldn't be allowed to spend that much of other peoples money without their consent.

It's not just the idea of taxes, it's the incredible waste that happens after they are collected. My kids go to a Catholic grade school. I pay about $3,000 each for them to get an education that hands-down beats the local public schools (and they are rated highly for public schools). The budget per child at the public schools in this area is $8,500. They are spending almost three times as much, yet they are underperforming by 40%. Yes, they have to take care of special ed kids, but they make up about 4% of the student body.

I agree with Kyle. I'll go for either the consumption tax or a flat tax.

@James

My apologies if I misunderstood. You said "we don't need taxes" but it sounds like you meant to say we don't need income taxes. A tariff is just a tax levied on imports.

I've heard people bring up the argument that we used to run solely off of tariffs. The problem is that the government was MUCH smaller then, and good luck ending all of our entitlement programs that take up a majority of the federal budget. Not to mention the devastating effect that instituting tariffs would have on our economy. Smoot-Hawley Tariff Act anyone? That led to a little thing called the Great Depression.

I wouldn't be totally opposed to pay as you go roads. It would certainly limit traffic congestion. Do you believe government should fund education? How about law enforcement and fire departments? If not, how would individuals pay for the last two?

Thanks for the discussion.

First, I would abolish the IRS and hold an official tax code burning ceremony. Political approval ratings would be through the roof. LOL. Then I would install a national sales tax. Personally, I would favor either this fair tax, or the flat tax above our current system. However, the flat tax lends itself to the same abuses of the current system. That's how we end up with a tax code larger than "War and Peace."

Fair Tax all the way!
Check out www.fairtax.org

David:

You were right, our government was a LOT smaller back then, and that's exactly what the framers of our constitution wanted. Somehow we went wrong somewhere since then that has caused our government to be the number 1 employer in the world. What's that about!?

I understand that we cannot just cut our government down overnight but I would expect that over an eight year period we could do a lot of drastic things.

Here is a breakdown of what I believe the governments should consist of:

Federal government should be the smallest branch of government we have. It's only responsibilities should the overall stability of our money system (central bank oversight), relationship management between the states [i.e. aiding in designing the national highway systems] and possibly an overall military strategy with a NON-STANDING army.

The state governments should have all the power. Each state should have it's own militia (like the Iowa National Guard) that can be called up but still is not a standing military and only on a voluntary basis. Taxes should be very minimal and should not tax us on our earning power. I don't mind paying a consumer tax when I purchase something but it should VERY low.. something like 1-2%. If we need a fire department then we can have volunteers like many towns do. If our city or state needs to raise money for something, such as a road, fire truck, ambulance, etc.. it should be done with municipal or state bonds. Those can be paid back using the 1-2% tax.

Anyway, I could go on and on about this. The truth of the matter is that government should hardly EVER be involved in anything except police work, justice, and overall needs such as national highways.

If that's all they did, and truly that is all we need, then they wouldn't need so much money or employees. Oh, one more quick thing.. welfare makes people lazy.. I grew up on it and it's the worst. My Mother never worked because she didn't have to and grew accustomed to the lifestyle that welfare provides. If we didn't have welfare, people would work harder to make it, and if we didn't have so much damned tax on us.. well people would be richer in the first place.

I better stop now before I get too carried away. ;)

@David & Joshua

I agree with most of what you guys are saying. It'd be a refreshing step in the right direction. Law enforcement would be a local issue as are fire departments. Many fire departments and firefighters don't collect any money from the federal and state governments.

I think we can agree that the government is too large. I think we're nitpicking at relatively small government expenditures like highways and law enforcement.

I don't like the government monopoly on education.

National security, law enforcement, and settling disputes should be all the government does.

I'd remove all federal tax laws and implement the FairTax (http://www.fairtax.org).