How I Fixed the Tax Code (In Half a Day)

I did it. I reformed the U.S. tax code.

It took me about half a day. With time off for lunch. Why Congress hasn't been able to do this in 26 years is another matter.

Today, of course, is Tax Day. Last week I unloaded with my ten top tax hates. I started wondering how difficult it would be to create something better that raised the same amount of money. Turns out, it's not hard at all. All those protests from Washington -- "it's tougher than you think" -- are a bunch of hooey.

As everybody knows, our current tax code is appalling. It manages to be offensive to every sound principal, liberal and conservative.

It's outrageously regressive. The super-rich often pay much lower rates than many in the middle class. Payroll taxes wallop the working poor. Hedge-fund managers get a tax break. Many people get a free ride. The different treatment of stock dividends, bond coupons and capital gains makes no sense and distorts economic behavior. The whole system is so convoluted it's a drag on the entire economy. The tax code is now four times as long as the complete works of William Shakespeare.

In short, our code is unfair, inefficient and perverse. It's the tax code you'd impose on enemy combatants, if it weren't for the Geneva Convention.

I figure a good tax code should be simple, efficient and fair. So I wondered if we could just combine a national sales tax, which is simple and efficient, with a drastically simplified but progressive income tax, which would be fair.

Scrap the regressive payroll tax. Scrap the regressive corporation tax, too: Instead tax the business owners, and treat all investment income and capital gains as income. No loopholes. No breaks. Easy.

The IRS says 2011 taxes total about $2.3 trillion. A 10% national sales tax would bring in about $1.1 trillion, or nearly half of what we need. That would ensure everybody pays something, and it would be relatively easy to collect.

What about income taxes? I played with three tax rates: 0%, 25%, and 40%. (Notice I have shunned the cowardly "39.6%," as well).

Single filers would pay zero percent up to about $50,000 in income, then 25% up to $200,000, and 40% on everything over that. For joint filers, I just doubled the limits: zero percent up to $100,000, then 25% up to $400,000, and 40% above that.

Based on the IRS numbers for 2009, the most recent available, this would have raised just over $1 trillion that year compared to the $915 billion that income taxes actually brought in. In 2011, when the economy was stronger, you have to figure it would be well over $1.1 trillion.

Which means, of course, that we are at our goal: $2.3 trillion.

You can, of course, play with the numbers and the brackets. But if anyone wants my vote this November, they could try offering me something like this.

Instead, of course, we have logjam.

Most of those who want our tax code simple and efficient don't really want it fair. Most of those who want it fair don't want it to be simple and efficient.

Meanwhile the White House's so-called Buffett Rule, imposing a new tax on many rich people, is just another Band-Aid: A new level of complexity to counterbalance the problems caused by the existing levels of complexity.

The Alternative Minimum Tax was brought in as the first Buffett Rule, forty years ago. You can tell how well it worked, as we need another.