The principle of a flat tax is simple. All income is taxed at the same rate for everyone. I specify all income because some wealthy individuals want a flat tax that leaves capital gains untaxed (I wonder why). I don’t believe in “wealth redistribution” but I do believe everyone should pay their fair share and there’s no reason why passive income is “better” than earned wages. To encourage small investors and help seniors without gifting hedge fund managers a limited amount of investment income (interest, dividends, and capital gains) could be exempt, e.g. $10-25K. The capital gain exemption on the sale of a primary residence should also remain. A flat tax would provide larger personal exemptions to protect low wage earners, a higher standard deduction to reduce the need for itemizing, and no loopholes. There would be no tables or scales. If the government wanted to impose any surcharges they would also be flat. Deductions for those who chose to itemize would include dependents, state and local taxes, uninsured medical expenses, charitable contributions capped at 10% of income (if you’re poor you can’t afford to give away more and if you’re rich you don’t need taxpayer support for your generosity), uninsured catastrophic losses, and capital losses with carryover to be written off at an age-dependent rate. The mortgage interest deduction would go away as would both the AMT and the current EITC. As I said, the sole purpose of a tax is to collect revenue.
Corporations have asked for a lower tax rate to be more competitive in the world. Let’s give it to them, but in exchange they must give up some of the subsidies and other taxpayer-funded benefits they enjoy. Make it simpler and reduce overhead, that’s the goal.
While a national sales tax would be even simpler it would hit lower income people disproportionally hard as they spend more of their income on necessities and less on discretionary items. If they had to file for some form of refund the system could be as complicated as the income tax it replaced.