No. How would they know how many charitable donations you made? How would they know how many miles you drove for your business? How would they know how much you spent on travel for your company? How would they know how much you paid for the raw materials for the products you sold? Or your business utilities, rent, etc? How would they know your unreimbursed medical expenses or casualty losses?
The issue here is that taxes have been over complicated with deductions. If it was just simply based off earnings and there were no deductions it would be simple.
Obviously taxes would need to be reduced if all deductions were removed. I for one would love to see a zero deduction tax law, and simple validation of earnings.
I think you're still stuck on W-2 employees (which is a pretty large and common case, I admit, and I'd love to see that simplified).
You will always need accounting for businesses (IMO).
Suppose you ran a lemonade stand. You bought some equipment, some raw materials, you used some utilities, you used some space, you bought a banner and some flyers to advertise your stand, you hired a lawyer to help set it up, you bought a business license, you bought cups and napkins, you took in some receipts. Let's presume you turned a profit.
On what figure should you pay taxes? The gross receipts (every dollar you took in)? Or just the profit (receipts minus expenses)?
And that's just a lemonade stand; imagine the complexity of a larger scale business...
In terms of businesses, I hold somewhat controversial belief that businesses should not be taxed. Their employees are taxed, and people recieving dividends are taxed. By not taxing businesses, we'd also balance out the unfairness in the system today, where large companies are able to offset all profits with deductions, and small companies which actually pay quite a bit. The point is to bring fairness to the tax system.
I don't know that I agree with the fairness points you raised, but from a sensibility standpoint, I like the idea. Corporate income tax is only 9% of total federal receipts, so it seems like we could make that up without incredibly burdensome changes. It would also make the US competitive again as a corporate domicile for multi-nationals (though without taxing them, it's not clear how advantageous that would be).
I do worry that it would raise other forms of exploitation of loopholes though. There would be less pressure to report payroll expenses (decreasing compliance and decreasing payroll taxes as anyone you pay off the books is cheaper out of pocket for you per dollar they receive) and I suspect we'd see a lot more people not taking large salaries at companies they control but rather funding their lifestyle needs with perks and loans from the company, the repayment of which would not be taxed.
Payroll taxes are 1/3 of federal receipts; any significant decrease in compliance there would perhaps be more damaging than losing the corporate tax income directly.
Yes, I think there is an enforcement and compliance problem. I think that gets into some serious details about a plan that would actually work. Perhaps extremely steep penalties for anyone caught cheating would be enough, but you are right that people would try to hide their revenue in the corporation. But aren't the extremely rich already doing that?
The entirety of economic entities is not conveniently split between "employees" and "businesses paying employees". Even aside from disabled, burnouts, unemployable, trust funders, criminals, barterers, and simple parasites, there exist sole proprietors, partners, and individual contractors, whose income never gets distributed to any employees.
Your hypothetical "fair system" will have to have policies and regulations in place to deal with all of these situations.
As far as I can see, the only opportunity for real fundamental simplification is to completely drop all taxes on income, and substitute consumption-based taxes. And even that is not as simple as it sounds (how does it deal with barter, for example?).
That would only be reasonable if you think that only poor and middle-income people should pay taxes. Everyone else would be able to opt out via a series of corporate shells.
