Why tax policy in America needs a clean sheet

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Editor’s note: Clark Howard wrote this story in 2013 about the tax code. Since it’s that time again, we thought you’d enjoy it. 

What we’re currently doing with tax policy in the United States is broken.

Read more: IRS hack keeps getting worse, more taxpayers affected

Our tax code is a jumbled, corrupt mess, more like what you’d find in a Third World country with all the tax preference items that politicians put in to help their key contributors. Just look at the scandal surrounding IRS Gate to see what’s wrong with things the way they are.

If I were your emperor, I would clean-sheet the tax code in America and institute a 15-25-0 plan. Here’s how it works:

  • The first so many dollars of income you earn would be taxed at 15% (or 10%) — the exact number would depend on economists doing math to see which rate would generate enough tax to be neutral with our tax levels today.
     
  • If you are a big income earner, your income will be taxed at 25% after a certain point.
     
  • There would be no corporate tax at all.
     
  • No deductions, no credits, no exemptions, nothing. Just a plain, simple tax.

Eliminating corporate income tax on domestic earnings

Why would I eliminate the corporate income tax on domestic earnings? Because taxing corporations just rewards those that funnel the most money to political parties, thereby funding the corrupt machine that is now Washington. Besides, whatever corporate tax they pay is passed on to you anyway as a customer. So I want to eliminate it entirely.

Capitalism requires transparency and continuity. Right now, we have no continuity with tax policy in Washington. Tax rates go up and down and rules change all the time. Businesses are trying to make long-term decisions to build a new factory, put research and development into a new product or hire new employees. But because they can’t figure out the rules of the game, they go into the crouch position and nothing gets done.

The key thing is to make it simple, clear and understandable by everybody. We need to take the incentive out of the system for corrupting the process. You do that by flattening the tax and eliminating all gimmicks, deductions, exemptions and the rest.

Read more: 3 ways to avoid tax fraud

Having an economic policy for our country involves more than just tax code. But the tax issue is a good starting point for us.

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A clear, understandable plan creates confidence. And that’s what we lack right now. Corporate America is sitting on record reserves of cash that they’re not doing anything with because they’re afraid to invest or expand. We need to restore confidence. One step toward that is having a tax code that people can respect and understand.

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