The most effective tax system is to choose a number, preferably a fairly low number in the range of 15%, and have people fill out their taxes on a postcard. They would list the amount of money that they earn, then calculate and send in 15%, and keep the balance.
It’s most effective for two main reasons:
The first reason is that it’s simple and so the paraphernalia of a lengthy tax process is avoided. There would be no forms, no deductions, no ways to dodge taxes and no need for accountants or attorneys. This method is so simple that anyone could do it.
The second reason is that it relies on the principle of proportional taxation, which means that the rich guy pays more, but he pays more at the same rate. If somebody makes $1,000 they would pay $150, if somebody makes $10,000, they would pay $1,500 and if someone makes $1,000,000, they would still pay 15%. The rich still would pay more, but they don’t pay a higher percentage, which I think appeals to an intuitive sense of fairness.
In addition, this flat rate percentage doesn’t have the distorting effect which a progressive rate does. For many people, if they’re taxed at a higher rate when they make more money, it makes sense not to work as hard, or to be as creative or to show as much initiative, because they’re not going to be rewarded for it. If earning more money will only push a person into a higher tax bracket where they end up paying more, in effect, they’re actually working for somebody else, in this case, the federal government.
So the flat tax of this kind is reasonable, fair, and simple and it probably will produce about the same amount of revenue as the government takes in now.
Author, Commentator and President of The King's College, Dinesh D'Souza