The tax system we have now is so convoluted it encourages non-compliance. Consider a grossly simplified tax system that will make taxes easy and automatic for the bulk of Americans. Specific suggestions:
[Note: I am not suggesting doing away with graduated income tax. I am suggesting making the tax flat for *most* and leave the complex tax system for just the high wage earners, who can afford expensive CPAs.]
VAT to tax consumption -- Implement a broad-based Value Added Tax. This tax would apply to virtually all transactions: goods, services, rents, interest, wages. The idea of a VAT is that at every stage of the production of goods and services a tax is applied. The seller collects the tax, then deducts the total tax that they have paid to others to produce the product or service. The net effect is that an incremental tax is applied at every stage. This can replace sales taxes, revenue taxes, and miscellaneous excise taxes (as different types of items might have different VAT rates). The tax percentage could be relatively small (5%?) but distributed over the entire economy. No longer would big corporations rake in billions and not pay any tax, since the government would get a bit of every bit of revenue. This taxes consumption and eliminates all loopholes, creating a fair and simple system.
Notice that I suggested that VAR apply to wages. This could serve as a low level “flat income tax.” On top of this, the existing tax system (hopefully very simplified) could be applied but only to incomes above a certain threshold. Ideally this would be designed so that 60-80% of Americans would not even have to file a tax return, as the “high income tax” would apply only to the highest earners.
Congress would then be able to manipulate several variables to control total revenue collected and how it is allocated:
VAR rate for different goods, services, wages, etc.
What threshold high-earner income tax would kick in
What the levels and percentages of the high-earner income tax would be