I agree with those points, but I think you can get there by using a VAT as the new revenue source (introduced in the way I suggest above so that it is not an additional burden on those who are least able to pay) combined with a strong movement to simplify the income tax system. The income tax, for all its historical flaws, works pretty well, and it would be very difficult to replace it (as opposed to supplement it) without unleashing a huge amount of evasion. The tax system should be designed to raise money in a fair, efficient way that is difficult to avoid. Expenditures should be transparent, not hidden in the tax code.

No, I am proposing to go further - getting rid of capital gains rates would do a lot to rebalance the system, so that the upper middle class does not take the main burden as scapegoats for the wealthy. My point is just that one must be careful to structure it in a way that reduces economic inefficiencies rather than increasing them.

The Bush Jr. cuts, which I assume you mean, expire automatically in 2011 - you'll want to tell your Senators and Congressperson not to renew them. They all think the American people are so self-absorbed that we'd rather see our government under the power of foreign lenders than to pay a little more to get out of our financial hole. (Of course, cutting out some of the wild giveaways might increase taxpayers' willingness to contribute.)

It is important to note, though, that increasing income taxes on the rich can only go so far before they start serious evasion/avoidance that our political system will not have the will to stop. The trick is to fix the structural problems in the tax system so that the government can collect the revenue it needs to pay down the debt without wrecking the economy or making it too tempting for the wealthy to get around paying the right amount. This Administration has a lot of smart people in it. They need to use those brains to good effect.

The Fair Tax is basically a 30% sales tax (proponents call it a 23% tax, but that's a math trick - something that costs $1.00 today would cost $1.30. They then divide the 30 cent increase by $1.30 to say it's a tax of 23% on the new price). I'll assume here that the 30% works, but let's look at what it would do.

The "Fair Tax" is so called because everybody pays the same sales tax, with people getting a small cash payment up front to help offset the impact on the poor. The theory is that rich people will pay the same share of their income in tax as working class and middle class people - regular folks - do. (However, Social Security and Medicare, the primary taxes imposed on lower bracket people today, would continue to apply, and would continue to be capped out so that they would have limited impact on higher income people).

I will set aside for purposes of this discussion the fact that rich people don't spend all of their money - they keep a lot of it to use to make more money. So those earnings aren't caught by the Fair Tax - they can compound their wealth forever.

The good thing about the Fair Tax is that it eliminates the tax compulsion that currently pushes corporations to move operations and jobs out of the U.S. But the Shared Economic Growth proposal (www.sharedeconomicgrowth.org) also does that. So now practical problem number 1. If businesses pay the sales tax, then this benefit will be lost. A corporation will not build a plant here and pay an extra 30% on their materials if they can build it in China and avoid that tax. So the Fair Tax exempts businesses. That means that company provided Rolls Royce, the company penthouse in Manhattan, the corporate jet, the skyboxes and "company entertainment" dinners and parties are all tax free. (The proposal purports to tax property used partly for personal purposes, but the burden of proof is on the government, and salaries are exempt, so if a corporation says it needs to provide these things to its executives, who is to argue?).

How about real estate? Realistically, we can't charge 30% every time a house changes hands, and we won't charge an extra 30% to first time home buyers. So that Biltmore mansion? Tax free (hey, it's used). We can't charge 30% on farm land. So that California estate to grow all of the rich person's vegetables organically and fresh, along with their personal winery? Tax free.

Employees are, of course, tax free. The proposal claims to exclude personal servants, but what about business aides, security people and other "business necessities"? So the army of servants, bodyguards, and general serfs, including the ones running the farm and winery? Mostly tax free.

Gifts are tax free. Those attractive women who are so nice to the bachelor millionaire when showered with cash gifts? Tax free. If anyone objects, they can be hired as employees.

The foreign trips to the Riviera and the mansions, servants, jewels and property kept abroad? All tax free - foreign purchases are outside the reach of the tax.

And guess what - the government will still spend a certain amount of money. If all these expenditures of the rich aren't taxed, who do you think will make up the difference? Maybe the regular people who have less political clout? Still believe that 30% rate?

Sure one could try to structure the tax to limit these problems, and the proposal weakly tries to hit some of the obvious ones, but once the IRS is gone who is going to battle the hordes of high price lawyers working late to figure out ways to avoid the tax? Remember, the proposal puts the burden of persuasion on the government - if it's arguably "business", defined as making a net dollar of profit after all the expenses, then it's tax free. An 8% or a 15% VAT will work because it won't be worthwhile to seriously evade it, but if we try to rely on a Fair Tax structure as the sole source of taxes, the motivation to undermine it will be too strong.

Jim, you might want to think about the proposal before commenting. It is the opposite of trickle down. It would shift taxes that currently fall on middle class savers so that they instead fall on the rich folks who currently pay tax at a 20% or lower rate. At the same time, though, it would reverse a stupid tax incentive that everyone agrees (because its true) discourages locating valuable operations in the U.S. Thoughtless spew is what keeps this country mired in stupid policies, because the politicians are too scared to bring forward any real changes that take more than one line to explain.

Spencer - partly true, but it remains the case that the main way they reduce their tax rates is by putting operations outside of this country, and they do their decision making based on the marginal rate, i.e. the tax that would be imposed on the new income. So they do in fact look at U.S. tax as being a 35% burden. (I do this stuff for a living and can speak with assurance on that point.)

Wilma - Actually I am painfully aware of that, which is why I am trying to convince regular people to speak up and demand this change, which would have pretty far reaching effects. The people who control the agenda have suppressed the idea pretty successfully over the years, but the power of the internet could change that.

Hi, Karl. Yes, regarding retirement funds the thing is that corporate taxes are sold as if corporations are rich individuals that suffer the burden of taxation, but really corporations are just pass throughs and the burden of the tax falls elsewhere. besides the indirect but very real impact on employees and customers, the direct impact falls on shareholders. because corporate earnings are taxed at 35%, retirement savers get less money than they otherwise would (54% less, in fact - they get $65 rather than $100). That's a real deal. I have it on authority that Treasury has considered the idea of a dividends paid deduction before, but suppressed it because the people holding stock in retirement funds didn't realize that they were effectively paying the tax, whereas the (generally very high income) individuals who would feel the tax once it was shifted to the individual level would squawk loudly. In this sense, corporate tax is a shell game - most people think of it as being progressive when its impact is actually regressive.

There is common agreement that Medicaid will fail within a decade under current trendlines. Social Ssecurity will take a little longer. But the main thing to watch is when they go cash negative, rather than when they go nominally bankrupt. Right now the general government deficit is being funded largely by social security taxes. When it goes cash negative, life will get bad very quickly.

Yes, I don't claim that these changes will cure all ills. But they'd be a big step in the right direction.

Thanks, James. I think the proposal is something that people along at least most of the political spectrum can agree with - our little group of co-conspirators has pretty diverse views, but this just seems like common sense.

Tim, this is why it is important to read the site at www.sharedeconomicgrowth.org. You will then understand that you are not paying a 15% tax, you are paying a 45% tax - 35% at the corporate level plus your 15% at the individual level. While it is possible that you will still think that it was fine to have the government skimm off half of your pension earnings even after the government defaults on Social Security/Medicare and even after your job, or the other jobs on which your job depends, has been shipped offshore, and after the U.S. economy has lost so much momentum that it is no longer feasible to fix it in our lifetimes, I rather doubt that you will feel that way. Let me know in 10 years when we get there on our current course.

This is NOT trickle down. It is a very direct mechanism whereby: (1) corporations are given a strong incentive to move high value jobs to the U.S., which does indeed create high value U.S. employment; and (2) individuals who own stock through IRAs, 401(k)s, union pension funds, mutual funds, etc. have their earnings DIRECTLY increased by over 50%, with the offset coming through fairer taxation of capital gains and high income earnings. The web site www.sharedeconomicgrowth.org explains in more detail, and the main paper in particular explains at some length how this is the opposite of trickle down economics, instead helping to restore the proper progressivity of our tax system.