March 24th, 2012
03:43 PM ET

Zakaria: America needs a 2-page tax code

Editor's Note: Be sure to catch Fareed Zakaria GPS on CNN every Sunday at 10am and 1pm ET.

By Fareed Zakaria, CNN

We’re going to hear a lot of polarized rhetoric over the next few months. The Republicans and Democrats will seem to disagree about everything. But there is one huge and important area where there is a possibility - a possibility - of bipartisan action and that’s tax reform.

Most Americans - Republicans and Democrats - dislike the tax code. They’re right to do so. America has what is arguably the world’s most complex tax code. The federal code plus IRS rulings is now 70,000 pages long. The code itself is 16,000 pages. The statist French, for example, have a tax code of only 1,909 pages - only 12% as long as ours. And then there are countries like Russia, the Czech Republic, Estonia that have innovated and moved to a flat tax, with considerable success.

You have to understand, complexity equals corruption.

When John McCain was still a raging reformer, he used to point out that the tax code was the foundation for the corruption of American politics. Special interests pay politicians vast amounts of cash for their campaigns and in return they get favorable exemptions, credits or loopholes in the tax code.

In other countries this sort of bribery takes place underneath bridges and with cash in brown envelopes. In America it is institutionalized and legal but it is the same thing: Cash to politicians in return for favorable treatment from the government.

The U.S. tax system is not simply corrupt, it is corrupt in a deceptive manner that has degraded the entire system of American government. Congress is able to funnel vast sums of money in perpetuity to its favored funders through the tax code without anyone realizing it.

For those who despair at the role of money in politics, the simplest way to get the corruption out of Washington is to remove the prize that members of Congress give away - preferential tax treatment. A flatter tax code with almost no exemptions does that.

The simplest fix to our tax code would be would be to lower the income tax dramatically, lower the corporate tax, and instead raise revenues through a national sales tax, or a value-added tax (VAT).

The U.S. is the only rich country in the world without a national sales tax. Germany has one at 19%, Britain at 20%, Korea at 10%.

What’s the appeal of a consumption tax?

First, it is efficient. Most studies, including one by the Internal Revenue Service (IRS), suggest that the federal government loses several hundred billion dollars a year to tax fraud. This is much tougher to pull off with a consumption tax. Second, it provides the government with a more stable form of revenue than income taxes. Income taxes fluctuate greatly between boom and bust years. Third, American’s consume too much, often using credit and leverage to do so. A consumption tax would moderate this behavior. Government will always get less of a behavior it taxes and more of what it subsidies.

Ironically, the heavy reliance on income taxes makes the American system more progressive than those in Europe. The federal government gets about 43% of its total tax revenue from taxes on individual incomes and profits, compared with only 29% in Germany and 22% in France. The balance for France and Germany comes from the VAT, which is highly regressive. One recent OECD study showed that the top ten percent in America pay a larger share of total taxes, 45.1%, than do the top ten percent in any of the 24 countries examined. In Germany they pay 31% of the taxes, in France 28%.

But the best thing about tax reform is that it kills corruption. So if you ask me what kind of tax code I am in favor of, I am in favor of almost any new tax code that fulfils one requirement: It should fit on two pages.


soundoff (439 Responses)
  1. Jose

    Although I agree that the tax code should be simplified to avoid corruption, why should it be simplified in a regressive manner? When people like Mitt Romney are paying 15% effective taxes, I hardly think they should be rewarded by being incentivized to take their money out of investments.

    March 24, 2012 at 4:16 pm | Reply
    • Aces Full

      90% of Americans pay between 0% – 15% effective tax rate.

      March 24, 2012 at 6:46 pm | Reply
      • Harlon Katz

        Don't go throwing up facts to people like Jose...

        March 24, 2012 at 7:03 pm |
      • The Transaction Tax dot Org

        Be sure to add in Fuel (Gasoline), Social Security/Medicare (Payroll Taxes), excise taxes (e.g. tobacco and alcohol), estate, etc. taxes. Almost no one pays 0%, and even the most frugal working poor pay Payroll Taxes.

        March 24, 2012 at 7:15 pm |
      • keith1952

        I can always tell when someone doesn't pay thier own taxes, Everyone pays more than 15% taxes. The payroll tax is more than that with your part and the employers part. The Employers part you pay too, if you didn't earn it they couldn't pay it. Hidden tax so your politictions can lie to you.

        March 24, 2012 at 7:51 pm |
      • Mike Rotchitches

        0% tax?... unless you're retired and you never buy anything (including food), have no property tax, pretty much just stay home and turn into skin and bones. You pay taxes.

        March 24, 2012 at 9:13 pm |
      • Pat

        Don't know the exact percentages, but somewhere close to 50% end up not paying taxes. The real shame is there are people out there that do not have a job, pay no income tax in, however file their taxes and get refunds. Too many people in this country expect handouts. I work in a grocery store and watch people with food stamps buy better food (steaks, ground round, name brand food), then use their cash to buy cigerates, alcohol, etc. Some, not all eat better than working class people. Food stamps should be treated more like WIC, only certain items are eligible.

        March 24, 2012 at 9:27 pm |
      • Jim

        Pay attention, people. The subject is Federal Income Tax (FIT). Yes, almost 90% of income earners pay less than Mittens and Buffett. Yes, almost 50% pay nothing. Yes, those who pay FIT may be paying other taxes, but that is irrelevant as paying other taxes does not absolve one from paying FIT any more than paying one's electric bill does not absolve one from paying the water bill.

        Zacharia FINALLY gets something right- a consumption (sales) tax is the most fair system and a two page code will tend to keep our national politicians at least somewhat honest. Where Zacharia is wrong is his implication that income tax and VAT could co-exist but, just like what happened in Europe, having both will only lead to higher rates on both.

        Another benefit of consumption tax replacing current US FIT is that the complete waste of productivity in calculating FIT is eliminated, which results in that effort being focussed on more productive endevours.

        March 24, 2012 at 9:38 pm |
      • Rondag

        It's actually about 0-12%.

        http://www.taxfoundation.org/news/show/250.html#table8

        As for people not paying 0%. Think of it this way. Many people pay a negative tax rate on individual income. Here is an estimate using all sources of federal tax revenue to determine % contribution to ALL federal taxes. (Note, this does exclude state taxes).

        http://www.taxpolicycenter.org/numbers/displayatab.cfm?Docid=2435&DocTypeID=2

        Note the estimate for the bottom quintile (bot 20%) is 0.0%.

        March 24, 2012 at 9:39 pm |
      • Rondag

        Oops, meant to say, does NOT include state taxes.

        March 24, 2012 at 9:40 pm |
      • Jim

        Clarification to my previous post- Almost 90% of income earner pay a lower income tax RATE than either Mittens of Buffett.

        March 24, 2012 at 9:41 pm |
      • griffbos

        where did you pull these number from, most I have seen have 66% pay less than a 15% in federal taxes...but we need to get rid of all these loopholes and just set a set rate

        March 24, 2012 at 10:38 pm |
      • jon

        some say noone pays zero tax. UHM not really. Look at EIC. Some folks pay ZERO income tax and get a check of $3500 a month and get food stamps and get free medical and get subsidized housing and .....

        March 24, 2012 at 11:27 pm |
      • Luke

        Oh please, marginal tax rate of 90% on any income earned over 1 million dollars, UNLESS the money is invested into productive investments. IE NOT Financial speculation. If the rich will not invest their money in the economy then the government must with increased taxes on those with so much they just sit on it, literally.

        March 25, 2012 at 4:25 am |
      • j. von hettlingen

        It's true that flat tax has been beneficial to the new democracies in Eastern Europe. It worked well as they didn't have any tax code before. Flat tax attracts foreign investments and helps their domestic business thrive.

        March 25, 2012 at 4:34 am |
      • Tax everyone

        Young people who are too lazy to learn how to work (or to even work) should not be receiving government benefits for doing so. They should no be getting thousands of dollars when they did not even pay any taxes. This needs to stop. Make them a part of America, not an overhead.

        March 25, 2012 at 7:11 am |
      • Richard Otier

        The unemployed getting unemployment checks (thanks to Reagan) pay up to 25%. How is that fair?

        March 25, 2012 at 9:00 am |
      • Damagon

        We already pay on average 9% sales tax (state wise) and now you want to add another 15% to that? You really think removing the income tax will balance that out? LOL Have you not met any American?

        March 25, 2012 at 10:54 am |
      • Neil IL

        This is an important discussion.. But people always seem to get wrapped up in the "Who isn't paying, which income group is cheating the system," tangent. Really, enough. That conversation leads to nothing but finger pointing, and is a diversion from problem solving.

        Tax reform shouldn't be about "going after this group," which seems to be all Democrats/Republicans do regarding this discussion. Democrats will highlight the loopholes and credits specifically provided to the wealthiest and corporations resulting from lobbying in DC, while Republicans will mumble about low income workers who aren't owing income tax in April, or receive FIC instead.

        Like Zakaria said, it the solution is a bipartisan one, which is to simply simplify.

        BTW, I wouldn't even bother with 'statistics' on taxes.. The system is so complex and tangled that heritage, taxfoundation, government PR agencies, etc all 'cherry pick' individual tax elements and broadcast them to push reasoning for one party's agenda or another.

        March 25, 2012 at 11:25 am |
      • peacecj

        Why does not a citizen show the good that our taxes do in our societies, versus of only emphasising the negatives.???

        March 25, 2012 at 11:43 am |
      • Paganguy

        Only illegals pay 0% tax. FICA is 6.4% on all income up to 100,000 per year.

        March 25, 2012 at 12:20 pm |
      • g

        and 90% of facts people post on a cnn forum are lies

        March 25, 2012 at 12:53 pm |
      • Dave

        That's the whole point – with 70,000 pages of rules & regulations, anyone with enough money/time/brainpower can find a way to "lower their tax burden" and effectively pay less tax. Going to a flat income tax means everyone pays "their fair share" – if it's 10%, then everyone pays 10%. Adding in the VAT means that I get to keep most of what I make – and I mostly pay taxes on what I SPEND...which is my CHOICE. The VAT doesn't really cover things like food and other necessities; but all the other "stuff" – so if I choose to buy it, then I pay the tax. If I want to sit in a tent on my land and not spend any money, then I don't pay as much in taxes. It ultimately puts the responsibility and burden on the people spending money. It's a very libertarian idea – that people have the right and freedom to decide when and how they pay taxes...through their spending choices.

        April 3, 2012 at 10:34 am |
    • The Transaction Tax dot Org

      Simplify and lower the rate for everyone, while increasing revenues - http://thetransactiontax.org

      March 24, 2012 at 7:20 pm | Reply
      • Art

        There is nothing fair about a transaction tax period. It's an absolute attempt to steel peoples savings, their business and their grocery check. For example, seniors that have saved 50 thousand over a lifetime and can't afford to gamble in the stock would be taxed when they buy that less than one percent CD and then again when they cashed it then again when they made a deposit into their checking account and again when they bought another CD for 45 thousand and then again and again. Stop the steeling and propose some fair and honest system.

        March 24, 2012 at 8:25 pm |
      • The Transaction Tax dot Org

        Art,

        I think your example can be simply fixed. A CD is, in reality a loan, designed so that you receive a certain return for not using your money for a period of time. A bank could structure a holding account where you allocate a certain percentage of your deposit as liquid (checking/debit), semi-liquid (savings), and locked (CD), each would have a rate of return and you would be taxed on the interest earned. So your $50K of locked funds could earn 1%, or $500 in interest and be taxed at 0.35% or $1.75 when the $500 was deposited to your account. I think moving allocations around in your account should not amount to a transaction.

        March 24, 2012 at 10:18 pm |
      • Richard Otier

        The Code dealing with personal 1040 tax returns is simple and concise. Where all the complexities come in are with businesses, especially very large global businesses who have had over the last 50 years packed the Code with some much special interest legislation it has become a behemouth.

        March 25, 2012 at 9:03 am |
    • Mike Rotchitches

      Jose – These fools that are commenting on your post don't understand what regressive taxation is. Fareed is suggesting a 20% national sales tax. These people don't understand that the lower your income, the more you'll pay in sales tax, proportionally. It's sad that these people are so mislead by partisan politics.

      Also, Fareed is claiming that the top 1% in the USA pay more in taxes compared to European countries. If that were true, there would be no reason to remain in the USA. Fareed is asking for a flat tax, and using a national sales tax. He talks with his pass the butter voice, but in the end he sound like any other believer in neoliberalism. As it stands, capital gains are not going to be taxed at this going rate. And the 1%-ers are making the lion's share of their income through investments. They don't pay their fair share in taxes, and they reap the benefits of a stable nation to do business in, then they don't create new jobs.

      I say, let them take their money, and their corporations to Europe. But then forbid them from doing business in the USA. Other businesses will take their place, and they'll survive paying a reasonable tax. Take Romney for example, I don't think he should pay 35% in taxes, but he shouldn't be paying 13% either.

      March 24, 2012 at 9:22 pm | Reply
      • Jim

        You're not understanding what a consumption tax entails. Essentials (food, medicine, etc) are typically not taxed at all, so someone living hand-to-mouth still pay very little, if anything, in Federal Sales tax.

        Also, nothing could be further from the truth than your claim that "(the 1%) don't pay their fair share in taxes". The top 1%'s average effective tax rate is FAR higher than than that of any other income group below that. This is an inescapable fact. There is absolutely no data to support your claim. None.

        March 24, 2012 at 9:53 pm |
      • Nick Danger

        Proportionally, 20% is...20%. If you exempt essentials such as food and medicine, then poorer people would pay a lower effective tax rate.

        March 25, 2012 at 12:09 am |
      • seppe

        BLA BLA BLA you sound to complicated, CONSUMPTION TAX IS THE WAY TO Go.and as far as the corporate investing and manufacturing product outside U.S.A. there product should be ban for sale in the usa. keep it simple and criminalize tax evasion....for real!

        March 25, 2012 at 9:36 am |
      • truth

        Mike Rotchitches thats exactly what I was thinking to. People think that think this propose idea of using a flat tax is free, or that this consumption tax would create a level playing field is crazy. It's the middle and lower class consumers that drive the economy, not the 1% of also 340,000,000 people. the mid and lower class people consume more and by more new products all that this tax would do is make it hard on the everyday person to buy common goods and needs.

        March 26, 2012 at 12:48 am |
    • dan

      http://www.fairtax.org
      Eliminate IRS and income tax.
      The "Fair Tax" sales tax is a very interesting proposal. Please read and endorse.

      http://www.fairtax.org/site/PageServer?pagename=HowFairTaxWorks

      March 25, 2012 at 12:44 am | Reply
      • TNPatriot

        Dan, I would suggest you read the actual fairtax legislation, rather than the propaganda from their site. The legislation as has been proposed several times actually exempts business; corporations and the 'capital gains crowd' from nearly ALL taxes. Several financial experts have pointed out that the way the legislation is written, the adjusted rate would need to be in excess of 50%. BTW, the 'fairtax', which should more appropriately be called the FRAUDTAX, does not exempt groceries.

        March 25, 2012 at 7:30 am |
      • Courageous

        TNPatriot's criticism of the Fair Tax mentions that the Fair Tax taxes groceries, but conveniently excludes a discussion of the prebate; since he did not mention this, and yet is suggesting reading the proposal, I can only assume that TNPatriot has read it, but neglected it intentionally. That's rather deceptive.

        March 25, 2012 at 10:12 am |
      • matt

        I've always had a problem with the name "fair tax." It's a bit presumptious. The consumption tax/sales tax may be your opinion of what's fair, but that doesn't necessarily make it right. Call it what it is and let the people decide.

        March 25, 2012 at 12:05 pm |
      • g

        if you eliminate the IRS who is going to collect your "fair tax"??

        March 25, 2012 at 12:54 pm |
    • dan

      http://www.fairtax.org/site/PageServer?pagename=HowFairTaxWorks

      The FairTax is a national sales tax that treats every person equally and allows American businesses to thrive, while generating the same tax revenue as the current three-million-word-plus word tax code. Under the FairTax, every person living in the United States pays a 23% national sales tax on purchases of new goods and services. This rate is equal to the lowest current income tax bracket (15%) combined with employee payroll taxes (7.65%), both of which will be eliminated.

      March 25, 2012 at 12:46 am | Reply
      • Richard Otier

        How do you square this with Aces Full comment that 90% of americans pay less than 15%? Who has the right set of facts?

        March 25, 2012 at 9:05 am |
    • bannister

      The 1% pay a disproportionate amount of taxes – which is fine with me. However, it bothers me that almost half the United States pays ZERO taxes. That is wrong – all of us, no matter how poor, can afford a few bucks. Everyone needs to have skin in the game.

      March 25, 2012 at 12:50 am | Reply
      • MC

        Oh shove a sock in it. Even the poorest pay social security and medicare from the first dollar of income. They pay sales taxes. Property taxes either directly or through higher rents charged by their landlord. Gas taxes. Sin taxes (alcohol, tobacco).

        When the income tax was first introduced only the very wealthiest owed anything at all. And there weren't any Glenn Beck-trained sheeple to bleat out brainless nonsense like "skin in the game."

        March 25, 2012 at 2:11 am |
      • Jim

        @ MC- Paying one tax for one purpose does not absolve someone from paying another tax for another purpose any more than paying the electric bill does not absolve someone from paying their water bill. Property, sales and sin taxes aren't even Federal taxes and don't have a single thing to do with the Federal Gov't. The Federal gas tax goes toward paying a small portion of road mantenence, not for Federal Gov't. Social Security and Medicare payments are to cover a specific benefit that the poor benefit from far more than the wealthy. (If you think the poor proportionately pay too much for SS, I would stand shoulder-to-shoulder with you to eliminate SS entirely so this baseless arguement is eliminated entirely.)

        Federal Gov't needs to be paid for and everyone needs to pay their fair share. Right now, almost half of income earners (who are also voters) are not paying anything, much less paying their fair share. If you can't grasp that concept, then tell your water company that you don't need to pay the water bill because you already paid your electric bill and see where that gets you.

        March 25, 2012 at 5:07 am |
      • taxedmore

        Bann – I agree 100%. EITC has turned into a massive giveaway.

        March 25, 2012 at 8:58 am |
      • seppe

        You are right,that is why the best form of tax is CONSUMPTION TAX. and criminalize tax evasion for real...

        March 25, 2012 at 9:41 am |
      • Neil IL

        Income tax, when it was first placed in law, was indeed meant to target larger income individuals (someone above already stated this). Look at the history of the income tax and you'll find that the percentage of what specific income groups pay has been consistent throughout it's existence.

        And yes, paying one form of tax does exempt you from another if it conforms to state/federal categories. Have an issue with this than you should be upset with certain groups avoiding payroll just as much as the other side of the fence avoiding income tax. Income tax is not the only federal revenue. It accounts roughly for 38-40% of Government revenue. Payroll tax accounts to another 28-33%. Some groups, most their taxes pour into income, others, like lower income, hourly pay (weekly,biweekly paychecks) pay into payroll (as do their employers, whose pay for staff is determined by subtraction of what they pay in payroll as an employer).

        This "target one group who are cheating the system" rhetoric is getting old.. It's fabrication generated from partisan PR stooges that identify and cherry pick info for one party's agenda or another. But ultimately, every income group feels like they're getting socked by the Man. No one's 'living the gravy train' as your partisan pundits want you to believe. They just want to incite to further extremist ends.

        March 25, 2012 at 11:45 am |
      • truth

        everyone pays some from of taxes,and I think the common mistake here is that everyone mixes up income tax with all the other forms of taxes out there. Almost everyone pays in on sales taxes, or property taxes. Remember that only the first 300,000 of your earned income a year is taxed. After that it's not taxed, so how many people do you know make 300,000 by themselves a year, let alone how many people do you know make six figures a year by themselves. This is a joke no body looks up any of the facts and then if they do they push only one side of the argument out there. However, I love how so many people think that this is just an easy situation to fix, if it was so easy don't you think everybody would catch on and have the same concerns and not be so divided on this issue? I would love to know how many of the people on this forum have ever taken a class in college. Let alone any kind of business, political science, financial math or economics. If they have I'm sure they are the ones with the more in depth post; because these class aren't easy and require you to have a true understanding of how thing in this GOLBAL ECONOMY work. Please, people don't push ideology. Research facts and info form non basis sources that don't come form .com's sites.

        March 26, 2012 at 1:08 am |
    • MC

      It's quite easy to avoid the regressive effect of a flat tax. You simply exempt the first X dollars from taxation. Most flat tax plans do have such a provision.

      March 25, 2012 at 2:09 am | Reply
      • MadJerry

        Or..... you can exempt necessaries like groceries and gas...

        March 25, 2012 at 2:39 am |
    • MadJerry

      Even if Mitt Romney only pays 15% effective taxes, I promise you that his 15% is still a larger amount than my 25%. My 25% amounts to the small 5 figures. His 15% is in the low 7s.

      March 25, 2012 at 2:37 am | Reply
      • jman

        And you think its right to pay 10% more in taxes?

        March 25, 2012 at 10:16 am |
    • Esteban

      Jose, This is populist rant. You must remember that Romney already paid taxes on his fortune. He is paying taxes again on that money. Now he is only paying taxes on the passive income.

      March 25, 2012 at 9:02 am | Reply
    • Kate

      MItt Romney pays 15% to the fed... what about the state? What about in property taxes? A ridiculous percentage of americans pay somewhere in the neighborhood of 40% in one form of taxes or another. The federal tax code is a joke.

      March 25, 2012 at 9:20 am | Reply
    • foxfire

      One area that needs to be changed is do away with being able to charge off mortgage interest on second home. That will improve the lack of taxes. Second, get tough on these free loaders.

      March 25, 2012 at 10:12 am | Reply
    • Americans First

      Tax and job policy should consider the effect on the American "circular flow of spending " ! It seems your jobs policy and tax policies contradict each other ! A flat tax will decrease domestic jobs of all kinds period !

      IF you look at the CFS in 1968 you will find import taxes and quotas in place that generated tax revenues and limited debt owed to foreigners! Restoration of import taxes would bring American manufactuing back and the related jobs and tax base !

      If you look at the laws in place under Truman and IKE you will find gifts had to be given to the US Treausury ! All outside income should be given to the Treasury now !

      Your policies will further destoy the US !

      This is why foreigners are not allowed to be President !

      March 25, 2012 at 10:23 am | Reply
    • Kevin

      One problem with VAT taxes. America is run now (whether we like it or not) on consumerism. If you increase the cost of goods wouldn't that drag down the consumption of some goods?
      Perhaps I'm ovethinking it...
      A flat tax makes a lot of sense to me. I would think it would be easier to create a budget without giving back some of the money taken in? Though there is the interest gained on the taxes held back until the end?
      During the best time in the American economy (1949-1970's) the tax rate on the top 10% was quite a bit higher than now, and the Middle class incomes were outpacing inflation (which they are not now). This created a situation where the Largest part of the population drove the economy with consumption. Now we have the larger part of the population has decreasing returns on income, therefore less to spend and pulling the economy down.
      The 1% or even the top 10% cannot drive a consumer based economy.

      March 25, 2012 at 11:08 am | Reply
    • Walter

      @ The Transaction Tax Dot Org - Yeah, I'll be sure to add in all those other taxes ... when we're talking about them. We're not. We're talking about the income taxes.

      Furthermore, adding them in really accomplishes nothing because practically everyone pays sales taxes, payroll taxes, etc. Adding those extra taxes is like having a conversation about food and nutrition and then chiming in, "Don't forget that people need water, oxygen, and sanitation, too!" I mean, yeah, of course, they do. So what? We're talking about food, not air, water, and sanitation.

      Finally, regarding the poor paying payroll tax, yeah, they pay those payroll taxes. You betcha. And then they get 'em right back with the EITC (Earned Income Tax Credit). As a matter of fact, in 2008, 24 MILLION people claimed the EITC and got back all or a portion of their payroll taxes.

      So don't let's act like we're adding something to the conversation by providing inane and pointless information, shall we?

      March 25, 2012 at 11:14 am | Reply
    • peacecj

      Fareed Zakaria knows little and talks alot. Firstly he should be sent back to mumbai from where he came. Secondly every human being dislikes taxes, and especially a muslim like fareed zakaria. The reason being, muslims like to rob others. Just look at their profits that they put on their loans, it is approximately 15%/month, and they call it halal. That is the reason fareed zakaria has chosen a topic of taxes, so he can propergate his islamic beliefs.

      March 25, 2012 at 11:39 am | Reply
    • Jeff

      Jose – You may not like Romney but he only pays 15% because the majority of his money is from capital gains that has already been taxed ONCE so all capital gains are twice taxed. Is that fair?

      March 25, 2012 at 12:54 pm | Reply
  2. Ben

    Have to disagree on this one. While I do think we should simplify the tax system, a more regressive tax structure would be disastrous. The German and French systems are more regressive, yes, but that works because they already have low enough income inequality that they don't need a more progressive system to keep inequality in check. I honestly don't care for the fairness or justice arguments made by the left regarding income inequality, but I think it still must be addressed as a practical matter. Following the financial crisis aggregate demand in the US is too low, and if we shift more of the tax burden onto the middle class and the poor aggregate demand will go even lower. In the future a VAT may be feasible, but for the time being the US must maintain a more progressive tax system than other industrialized nations.

    March 24, 2012 at 4:32 pm | Reply
    • Jason

      This is true. The second piece of a national sales tax is that you also distribute a lot of that money to those who are on the bottom rung. The poor can't afford to pay more taxes on scarce income unless the government is also going to supplement them to a greater extent than it already does.

      In Europe, VATs make a lot of sense because there is a built in assumption in most of these places that no matter how bad it gets for you, you'll never be without a roof over your head and food in your stomach.

      IMO, to get where Zakaria is talking about, we'd probably need to move in two stages. Stage one would be getting rid of tax deductions and moving marginal rates lower across the board. Step two would be moving to an actual flat income tax, getting rid of payroll taxes, introducing a VAT, and adjusting social safety net to compensate.

      Step two is a lot harder than step 1, and step 1 isn't exactly easy.

      March 24, 2012 at 7:16 pm | Reply
      • Chris B

        ...or without healthcare.

        March 24, 2012 at 7:31 pm |
      • emahu

        yeah truth...you know what ..a super country with out much of its people suffeed from insured health care system rather work hard..high rate of tax systems...in turn costs a lot of money expenditures for its people to recover its food claims thru food stamps..all overall most the system , america planted shoud undergo ..recession

        March 24, 2012 at 11:52 pm |
      • shibumi

        that's what i was thinking, listening to all the tax reform ideas.
        we need more taxes. i think everyone who is serious agree with that.

        i'm still not sure about making it completely flat tax, though.

        we have some of the rich individual and business getting away with tax credits and deduction through lobbyists.
        we have some of the middle and low income people who got tax exemptions that distort markets, especially of housing for the sake of "social safety net".

        meanwhile, we have a huge inequality in income, public education and access to colleges, public transportation, health care, etc. tax expenditures used as social safety net is distorting and confusing.

        however, those these european countries have simpler, lower but nonetheless progressive income tax as well as national sales taxes (high gas tax). why cant we adapt the bowels-simpson idea of lowering income tax rate with carbon and other taxes while treating capital gains as regular income and getting rid of most tax deductions and corporate loopholes.

        March 26, 2012 at 3:33 am |
    • Americans First

      I agree with Ben ! Regressive taxes have skyrocketed since 1970 causing a lot of these problems !

      March 25, 2012 at 10:25 am | Reply
    • Americans First

      I agree with Ben ! Regressive taxes have skyrocketed since 1970 causing a lot of these problems ! More regressive flat taxes will destroy domestic jobs and prosperity !

      March 25, 2012 at 10:26 am | Reply
  3. Charlie

    Very simple solution to regressivity of VAT + FICA withholding, with a flat tax:
    have the flat tax at say 20% start at a relatively high income level, for example $60,000. So everyone below that just pays VAT and FICA, no income tax.

    Charlie

    March 24, 2012 at 4:33 pm | Reply
    • Dean

      We already let 50% of people off without any fed income tax.

      March 24, 2012 at 5:07 pm | Reply
      • Patrick

        Who is "we" and where did you get that information.
        You know, I need to educate myself?

        March 24, 2012 at 5:17 pm |
      • Qodex

        "We" is the American people via their elected representatives. Sources are numerous; you should learn to use Google. Here's one: http://usgovinfo.about.com/od/incometaxandtheirs/a/whopaysmost.htm . And while the bottom 50% aren't quite at 0%, it's very close. However they DO pay payroll taxes.

        March 24, 2012 at 6:07 pm |
      • Patrick

        Tampax, is Google where you get your information?
        Are you aware that there are places where information is correct other then the Google.
        Get out of your cave and use other search engines. Believe it or not, it is a good thing to access a variety of information to research a concept.

        March 24, 2012 at 6:42 pm |
      • Harlon Katz

        Patrick – are you that clueless – Google is used as an INDEX – when you go do the library (if you do), do you start looking at every single book until you find the one you need, or do you use an index? Here is another example from CNN:
        http://money.cnn.com/2011/04/14/pf/taxes/who_pays_income_taxes/index.htm
        Now, you can also go to IRS.gov to get more of the detailed information if you wish to do your own analysis.

        March 24, 2012 at 7:08 pm |
      • Patrick

        Abdul, habibi you are very very funny.
        Try another search engine other than Google.
        Use Google and type "10 top search engines."
        Education can be liberating.
        Very, very funny.

        March 24, 2012 at 8:00 pm |
      • pbcrabshaw

        And thousands of that 50% are millionaires

        March 25, 2012 at 9:33 am |
    • Derek

      Ahh, the ol' "Look it up on Google!" argument. The unfortunate thing about Google's rise to fame is that it has now become a catch-all end to any argument whenever someone who doesn't really know what they're talking about wants to make everything THINK they know what they're talking about. Just let Google do the debating for you! All you have to do is provide a random link!

      March 24, 2012 at 7:13 pm | Reply
    • Chaotician

      I could not agree more; it is immoral and criminal that the aveage citizen needs a "Tax Expert" to determine their taxes; and the notion that "unearned" income is something special that needs lower taxes is so corrupt as to make one speechless! Clearly, what is needed is a 2 page tax system and that is probbaly one too many! First eliminate entirely the current payroll and income taxes and use a very simple and skewed income redristribution on the order of 1-10 Million 10%, 10-100 Million 50%, over 100 Million 95% on a strictly individual basis. Then fund the govt exclusively from a VAT that excludes food and direct person to person sales in several categories such that the total VAT is around 30% of GDP plus the fees for \business services! Single Payer Health Care 10%, single payer Social Security 10%, Free education 7%, War 1/2%, defense 1%... Removing medical costs from Car, home, and business insurance will save billions, eliminating "claims" processing trillions, ending the multiple "pension" system from all govt(State and local, and FED) as well as from business will revitalize everything. And using the VAT criteria for imports will help level the playing field for foreign goods! We can liquidate all trust and foundations used to avoid taxes and pass their greed to the next generation and use the monies to eli9mionate the national debt; clearly the "death" tax must take all monies beyond a nominal "starter" boost of say a Million or so! If the brats can't make it with daddies money. connections, and traini8ng; then who needs them???

      March 24, 2012 at 7:18 pm | Reply
      • Maya

        So, basically force the rich and successful, who use the fewest public services, to support the poor and unsuccessful, who use the most public services. That's fair. While we are at it, why don't we just put all our scientists in work camps and force them to work for the good of the public.

        March 24, 2012 at 8:31 pm |
      • MC

        "So, basically force the rich and successful, who use the fewest public services, to support the poor and unsuccessful, who use the most public services."

        Good god, another imbecile heard from. The rich are the ones who have MOST benefited from public services.

        March 25, 2012 at 2:14 am |
      • Jim

        @ MC- EVERYONE is equally free to use the infrastructure. If someone doesn't, it is because they chose not to. Nothing would be greater than more people using more infrastructure to produce more, but far too many choose to not live up to their own potential. The fault for that does not lie with the wealthy. There is absolutely nothing stopping any American from earning more by working harder, faster, longer, smarter, or take risk, or any combination thereof.

        March 25, 2012 at 5:20 am |
    • The Transaction Tax dot Org

      Any tax that doesn't start at dollar 1 is not flat. See http://thetransactiontax.org for a single rate tax that can simplify and raise revenue, while dramatically lowering both the rate and the total paid by a wage earner.

      March 24, 2012 at 7:19 pm | Reply
    • MadJerry

      This makes no sense to me. How are you going to collect a tax on a point of sale transaction and ask the dude how much money he makes in order to determine the tax rate the register will charge. Just exempt things like groceries, utilities and gas. Yachts and Jets will still carry the same 20%. That is a de facto progressive VAT.

      March 25, 2012 at 2:42 am | Reply
    • seppe

      It sound good,the problem is that is,if you live on option no matter how insignificant it may sound it lead to misinterpretation and corruption,therefor whatever system is in place need to be without option...

      March 25, 2012 at 9:54 am | Reply
      • Jon (not Huntsman :)

        seppe, until you learn to write in English, don't comment.

        March 25, 2012 at 11:18 am |
    • shibumi

      that's not a terrible idea. though i dont know about 20% or 60,000. i heard that it have to be more like 30% to replace the current income tax and maybe income of 100,000 or so can be taxed on their income.

      in eastern european countries using flat tax with exemption for the bottom income, actual taxes they take in is about the same rates as progressive tax systems expect for the top income.
      with exemption for the lowest income earners and additional income tax on the top, i can go for flat tax. then it isn't regressive.

      March 26, 2012 at 3:42 am | Reply
  4. ted

    Why is CNN allowing this muslim leftist Zakaria polute its daily headlines is beyond me.

    March 24, 2012 at 4:35 pm | Reply
    • John Smith

      How dare you sir!

      March 24, 2012 at 5:02 pm | Reply
    • Jim

      And you're an islamaphobe.

      March 24, 2012 at 5:10 pm | Reply
    • Patrick

      Great acting. Bravo!
      So you got on the phone with all your girlfriends and you decided to pretend so that the girls could scream "islamaphobia".
      hehehe...

      March 24, 2012 at 5:20 pm | Reply
    • hoosierherm

      First of all, I think you people with more knowledge than I about taxation have covered this topic very well !
      Thanks to You all, as well as Fareed.
      My Second comment is this: Ted, You are an idiot ! and a Rude one at that ! Here's Ted's comment Folks :
      "ted:Why is CNN allowing this muslim leftist Zakaria polute its daily headlines is beyond me."
      Now, While I don't know how Ted stumbled onto this discussion,but my instincts tell me that he thought he was going to Fox News ! So, Ted, You bigoted Jerk, FYI; Fareed Zakaria is one of the most knowledgeable Journalists working today. In addition to his award-winning GPS Program, Fareed writes for Time Magazine, and other publications, and is a highly respected American. Mr. Zakaria's religion, whatever it may be, has never interfered with his objectivity, and has nothing to do with his popularity. Sorry for the Big Words Ted, but that's the way we Normal Americans write and think, whoops, "Think" is probably a concept you have yet to discover too. Now, as far as Fareed being a Leftist, my more liberal friends think he's really too conservative, and I think it's a Non-issue. Now Ted, it's time yopu got off of Mom's computer, and turn on your AM radio and listen to some Rush Limpballs ! By Now, See Ya !

      March 24, 2012 at 5:31 pm | Reply
      • Rusty

        Thanks! Exactly my sentiments.

        March 24, 2012 at 6:08 pm |
      • whsj

        Well said.

        March 24, 2012 at 6:47 pm |
      • Patrick

        Absolutely marvelous.:)

        March 24, 2012 at 6:52 pm |
      • NHA

        hoosierherm, you have said it all. Well said buddy.

        March 24, 2012 at 8:16 pm |
      • lb

        Here here well said

        March 25, 2012 at 7:59 pm |
    • hoosierherm

      Ted, You are an idiot ! and a Rude one at that ! Here's Ted's comment Folks :
      "ted:Why is CNN allowing this muslim leftist Zakaria polute its daily headlines is beyond me."
      Now, While I don't know how Ted stumbled onto this discussion,but my instincts tell me that he thought he was going to Fox News ! So, Ted, You bigoted Jerk, FYI; Fareed Zakaria is one of the most knowledgeable Journalists working today. In addition to his award-winning GPS Program, Fareed writes for Time Magazine, and other publications, and is a highly respected American. Mr. Zakaria's religion, whatever it may be, has never interfered with his objectivity, and has nothing to do with his popularity. Sorry for the Big Words Ted, but that's the way we Normal Americans write and think, whoops, "Think" is probably a concept you have yet to discover too. Now, as far as Fareed being a Leftist, my more liberal friends think he's really too conservative, and I think it's a Non-issue. Now Ted, it's time yopu got off of Mom's computer, and turn on your AM radio and listen to some Rush Limpballs ! By Now, See Ya !

      March 24, 2012 at 5:33 pm | Reply
      • Jim

        Herm- This really isn't the best way to score a date with Fareed.

        March 24, 2012 at 10:20 pm |
    • Beechwwod1

      Agreed! This guy advocates lost of ridiculous stuff. He knows very little of what he talks about, and always compares us to foreign policies.
      For Instance, he advocates eliminating the natural-born requirement for presidency. 1) I give you President Albert Fujimoro of Brazil, he fled the country after being indicted. 2) POLITICALLY – can you imagine the political uproar and constant political questioning of his loyalty if we actually had a foreign president. IT would never end considering how HOT our political discussions are. We absolutely would not need that distraction. Zakaria is nuts.

      March 24, 2012 at 5:39 pm | Reply
      • Captain

        You realize Fujimori was born in Peru, right? You also realize he was the leader of Peru not Brazil, right? You really should learn your history at geography before posting lies.

        March 24, 2012 at 6:02 pm |
      • Bruce

        Wrong and wrong. YOu have no real facts. Wrong country. False info. Worthless post.

        March 24, 2012 at 6:27 pm |
      • NHA

        Beechwwod1, you need to read before you post. Maybe you could learn something from the Captain!

        March 24, 2012 at 8:19 pm |
      • Craig

        Problem #1: Fujimoro was the leader of Peru, not Brazil.

        Problem #2: He was born there...hence a true native and not a naturalized citizen.

        Problem #3. Richard Nixon...native born, un-indicted co-conspirator, and generally corrupt President.

        So... exactly how does your idea change anything...other that the history you obviously slept through?

        March 24, 2012 at 9:45 pm |
      • Jon (not Huntsman :)

        But if we allowed foreign-born citizens to become president, Bill Maher and Jon Stewart could run for the office.

        March 25, 2012 at 11:24 am |
    • nadia

      I'm not or Islam at all,but he makes a lot of sense anytime i've listened to him. He seems to be a kindhearted intelligent man.

      March 25, 2012 at 4:54 am | Reply
      • nadia

        woops ,sorry for the misspell. I meant to say "I'm not for Islam in any way". and ,by the way, I'd love to see no taxes at all. We are the ones that have earned it. Let us keep it.hahahahhahahaah

        March 25, 2012 at 4:56 am |
    • seppe

      I agree with you partially,CNN it's not doing a good job,but Zakaria makes more sense in this case...

      March 25, 2012 at 10:04 am | Reply
  5. JoeSixPack

    What part about SPENDING IS THE PROBLEM don't you understand? Do you even know how highly taxed these other countries are? VAT, Income and Payroll taxes.

    March 24, 2012 at 4:36 pm | Reply
    • Nate (Seattle, WA)

      Just because you put it in all caps, doesn't make it gospel.

      Federal tax rates are the lowest they've been in 50+ years (and back then, the government didn't have programs like Medicare!). So, extraordinarily low tax rates are also a problem.

      What part of that don't you understand?

      March 24, 2012 at 4:49 pm | Reply
    • The Transaction Tax dot Org

      Interesting point – Denmark (Income Tax can reach 57% and VAT 25%)

      Tax revenue as a percentage of GDP 48.2% - http://www.investopedia.com/financial-edge/0911/Countries-With-The-Highest-Taxes.aspx (US 24% about the 26th highest out of 28 developed countries).

      Happiest country on Earth – http://www.forbes.com/2010/07/14/world-happiest-countries-lifestyle-realestate-gallup-table.html (US is number 14)

      March 24, 2012 at 7:40 pm | Reply
  6. Harry Katz

    Only one problem: real tax reform takes money out of the pockets of politicians, especially Republicans... so until the Republican presence in Congress is reduced, no way in hell will there be any meaningful tax reform...

    March 24, 2012 at 4:37 pm | Reply
    • Peter

      Did you have to pay a VAT when you were brainwashed?

      March 24, 2012 at 6:03 pm | Reply
      • Patrick

        hehehehehehe...

        March 24, 2012 at 7:05 pm |
    • Harlon Katz

      You should really head the proverb "that it is better to be silent and thought a fool than to open your mouth and have it proven". You do realize it was the democrats that were propping up Fannie / Freddie before the fall when Bush / McCain were looking for more oversight, don't you? You are problem OK with the union bosses buying off politicians as well. The thing is, BOTH parties are corrupted by special interests – it is only fools like you that see it as a one-sided issue.

      March 24, 2012 at 7:12 pm | Reply
      • nadia

        I'm gonna' open my mouth and look like a fool,but i would vote for mccaine if he were running.Most didnt because they didnt want the war to continue,but it has anyway,hasnt it.Id rather fight them there than here, but would love to have more of our military on our borders and going after our own homegrown druggies.etc.Illegal immigrants that drain our system and other vices like that. If the government would allow us to rear our own children instead of interferring on every front,maybe we wouldnt have to worry also about so many being incarcerated.I mention that because I saw no area to place our input on that topic.

        March 25, 2012 at 5:01 am |
    • The Transaction Tax dot Org

      The complex tax code is desired by both major parties, it's how they get funding to stay in power. http://www.thedailyshow.com/watch/tue-december-13-2011/exclusive-lawrence-lessig-extended-interview-pt–1

      As long as the Political Parties can keep us believing its all the fault of the "other party" we loose. They are both corrupted by our current tax system and campaign finance.

      George Washington warned against political parties - http://www.thirty-thousand.org/pages/Baneful_Parties.htm

      March 24, 2012 at 7:45 pm | Reply
  7. Common Sense

    Agree. Except that the "two-pages" criteria can further be simplified to one word: 9-9-9 ! Thank you Mr. Cain for putting spotlight on it.

    March 24, 2012 at 4:38 pm | Reply
    • JCT

      nine-nine-nine is 3 words, how's that for some common sense?

      March 24, 2012 at 6:22 pm | Reply
      • Travis

        Technically it is one word repeated three times.

        March 25, 2012 at 11:07 am |
    • Bruce

      9.99. That's the price of a pizza.

      March 24, 2012 at 6:28 pm | Reply
      • Patrick

        hehe...

        March 24, 2012 at 8:13 pm |
  8. W8a2nd

    Once in awhile Fareed does come out with a good idea. Problem is this idea has been around for decades and nothing has ever been done. Why does he think that suddenly Congress would change their corrupt and self serving ways? Gaurenteed it won't happen if we have a split house and presidency as is now the case. And of course we have the new menace of teabaggers and occupiers to keep the status quo going.

    March 24, 2012 at 4:52 pm | Reply
    • Patrick

      Can you restate what you think is the idea; and, then explain the resolution you are proposing?

      March 24, 2012 at 8:14 pm | Reply
      • SOMEONE

        I BELIEVE THAT THE OVERALL OBJECTIVE WAS TO PROVIDE THE MOST STABLE ENVIRONMENT IMAGINABLE FOR THOSE THAT NOT ONLY DESERVE IT, BUT ALSO FOR THOSE THAT WE WANT TO DESERVE IT AS IT SHOULD BE CONSIDERED A PRIVELAGE AND HONOR TO BE ABLE TO ENJOY LIFE. IF THE THINGS YOU DO EVERDAY ARE UNENJOYABLE THEN SOCIETY ISN'T IN THE CORRECT SHAPE TO BE EDUCATIONAL AND MEANINGFUL FOR OURSELVES AND THE NEXT GENERATION.

        March 24, 2012 at 9:21 pm |
      • Patrick

        SOMEONE, habibi, we do not understand what you are saying. Restate.

        March 25, 2012 at 8:58 am |
  9. Alex

    The American tax code is deceptively progressive though – the richest Americans pay a lower tax rate than many middle and upper middle class families. At least a consumption tax would be proportional to the amount of money that one spends. In addition, if we increase the amount of tax burden on corporations by eliminating business tax loopholes, then we can reduce the tax burden on families.

    March 24, 2012 at 4:52 pm | Reply
    • Dean

      Just can't hide stupid. Our fed tax rates are as follows.
      •10% on taxable income from $0 to $8,700, plus
      •15% on taxable income over $8,700 to $35,350, plus
      •25% on taxable income over $35,350 to $85,650, plus
      •28% on taxable income over $85,650 to $178,650, plus
      •33% on taxable income over $178,650 to $388,350, plus
      •35% on taxable income over $388,350.

      March 24, 2012 at 5:12 pm | Reply
      • scott

        Except that most of the wealthy get a substantial portion of their income in stock options and capital gains specifically to avoid high tax rates associated with direct income. This is why Romney only paid 15% on his income last year when he made millions.

        March 24, 2012 at 5:16 pm |
      • Alex

        Capital gains are taxed 15% no matter how much you make. I would guess that a majority of the super wealthy make most of their money from capital gains, not taxable income.

        March 24, 2012 at 5:23 pm |
      • Sagebrush Shorty

        The key is "Taxable Income".

        March 24, 2012 at 5:53 pm |
      • Bruce

        Those figures are on TAXABLE INCOME, not on total income. So those are the rates AFTER all of the loopholes that are given to the rich. YOu need to measure EFFECTIVE TAX RATES to have a fair comparison.

        March 24, 2012 at 6:32 pm |
      • db

        except at the rates you quote people with a child or children qualify for earned in come credit at about 50K income level. It is possible to receive more than you pay because a credit is much better than a deduction. So you go out and buy a truck average cost 40k, or your new electric car and add that vat tax to that along with the state county and city sales tax and figure out if you can still afford to buy it. Vat is stupid for america . We are not these smaller countries – land wise – they keep pulling out as an examples. They are a poor fit to our system and how we look geographically. Put in a mass transportation system like these other smaller countries you chose to cite as examples and you jmight could start to consider similarities. Farad, get out of NY once in awhile it is not the center of the universe – its a big country and different where ever you go.- and the metro isn't always available . Before I offended anybody from NY – love the city to visit. Good people. Good beer. The government takes in enough already. Flat tax. Flat tax. Flat tax. Set a rate for income levels. Quit there.

        March 24, 2012 at 7:06 pm |
      • Rondag

        Remember that these are progressive rates, so that someone in the 2nd bracket still pays 10% on their first $8,700 so EVERYONE'S effective rate is lower than what is posted there. Want to compare effective rates? Look here:

        http://www.taxfoundation.org/news/show/250.html#table8

        The rate of progressivity is less than would appear from the posted rates by income level, but it is still absolutely progressive in the aggregate.

        March 24, 2012 at 9:35 pm |
      • garyschnid

        Worst case, you have a standard deduction of $5,950. This means anyone making less than this pays NO income tax (like they could afford to). They still pay social security and medicade. With this considered, you can make nearly $15,000 (over $20,000 if your married) before you get to the 15% bracket. If you can itemize, the sky is pretty much the limit.

        March 25, 2012 at 1:37 am |
    • medianone

      Last week there were several stories on CEO bonuses and salaries. What was notable in most all examples what how these huge payouts are/were structured. The vast majority was given in stocks or stock options (which are taxed at your aforementioned 15% when they are cashed in). It was a relatively small portion that was paid out in cash, which would be taxed according to the rates Dean stated. IRS pursues cases where heads of small businesses pay themselves a one dollar salary but heavy up on the dividend or stock component.

      March 24, 2012 at 5:40 pm | Reply
    • Harlon Katz

      Bruce – do you even KNOW of any of these "magical" loopholes that you are talking about, or are you just spouting talking points you heard from Madow? Many "loopholes" are just regular tax deductions (home mortgage interest, taxes paid to your state, etc) and other are ones granted by the Feds to promote what they want (ie: the "Green Energy" tax cuts that allowed GE to pay no federal taxes).

      March 24, 2012 at 7:16 pm | Reply
  10. Larry

    OH MY GOD! This must be a sign of the end of the age.

    I agree with Zakaria. He's right.

    I shall now go be nauseous.

    March 24, 2012 at 5:01 pm | Reply
    • LouInATL

      No, it's a sign that you are getting smarter. Congratulations – this is a big day for you!

      March 24, 2012 at 5:23 pm | Reply
    • Wastrel

      Zakaria is wrong only about 95% of the time. This is one of his successes - maybe. It reminds me of the Two-Page Simplified Tax Form, though, the one that asks on Page One how much money you made, and on Page Two says, "Send it in."

      March 24, 2012 at 6:25 pm | Reply
    • johnnyfieffects

      Zakaria is a hack bent on making us like Europe. The problem is we aren't Europe, thank God. Fair would be a flat tax with few deductions. All progressive tax systems are unfair by definition by forcing higher producers and earners to pay higher rates. that said, he might be on to something here. One rate on income (only one) and a VAT might be more fair.

      March 24, 2012 at 7:20 pm | Reply
      • seppe

        You make it sound like europe it's a dirty word , THAT IS AN INSULT! let me remind you that America was discovered by european and build by european ....

        March 25, 2012 at 10:23 am |
  11. Dean

    We only need a one line tax code. Everyone pays 18% of their gross income with no exemptions allowed for anything.

    March 24, 2012 at 5:08 pm | Reply
    • Russell

      If I live in a Company house, drive a Company car, eat in the Company dining room, go on Company retreat vacations and receive $1 in gross income per year, does that mean I pay 18 cents tax? (with no tax law, only my gross income is taxed)

      March 24, 2012 at 6:30 pm | Reply
      • Jim

        No, US income earners are NOT taxed on gross income- they are taxed on Adjusted Gross Income (AGI), which is total (gross) income less all deductions. Most of the company benefits you list are considered income and are taxed as such.

        March 24, 2012 at 10:02 pm |
    • Miss Demeanor

      And then when everyone pays 18% of their income, all the small business owners & self-employed people will find fraudulent ways to declare less income... fraud will increase dramatically. A VAT or national sales tax would eliminate a lot of that (since many of the transactions are charged and easier to scrutinize).

      March 24, 2012 at 6:34 pm | Reply
  12. ufadoof

    There he goes again presenting facts. But hey, go ahead and shoot the messenger while continuing to vote democrat or republican against your own interests.

    March 24, 2012 at 5:10 pm | Reply
    • Patrick

      doofus, you are not making any sense.
      Regroup.

      March 24, 2012 at 5:24 pm | Reply
    • Miss Demeanor

      uffda...

      March 24, 2012 at 6:35 pm | Reply
  13. Zach

    The downside to the consumption tax is that lower income people spend a much larger proportion of their income overall. For example, a person making $10 million/year might only spend $2 million/year. That's a lot of money, and a lot of tax, but he's only getting taxed on 20% of his yearly income. On the other hand, someone making $20,000/year will spend $20,000/year and is therefore getting taxed on 100% of his income.

    I suppose you could level things a bit if you treated stock purchases the same as other puchases and applied sales tax to them also. Not only would it subject a much larger percentage of the very wealthy's income to taxes, but it would also make stock purchases more deliberate and less volitile. People would make more long term investments to avoid more sales tax, as opposed to going for short profits.

    March 24, 2012 at 5:24 pm | Reply
    • Brian

      If you have less money, you should be consuming less. Spending more than you can afford will never help anyone get out of poverty.

      March 24, 2012 at 5:59 pm | Reply
      • Bruce

        Below a certain level of income, one has to spend all of it just to survive. It has nothing to do with spending it wisely when all the money goes to food and shelter.

        March 24, 2012 at 6:35 pm |
    • Harlon Katz

      Also, that excess cash will EVENTUALLY be spent, and it will be taxed at that time...

      March 24, 2012 at 7:18 pm | Reply
    • Jim

      Most consumption tax schemes allow for this by exempting essentials like food, medicine, etc, from the tax. Most consumption tax schemes also refund any consumption taxes paid by those under the poverty threshold.

      March 24, 2012 at 10:06 pm | Reply
  14. eric

    Holy S**T!
    I actually agree with something you wrote.
    2 pages, EVERYONE pays a 19% consumption tax.

    AMEN!

    March 24, 2012 at 5:25 pm | Reply
  15. Marc K.

    I generally agree with much of what Fareed Zakaria writes. But here I disagree somewhat. He is right to say that a long, detailed, complex tax code is a sign of special interests who pay off politicians to insert loopholes and other favorable treatment. But another reason a tax code – or any regulation – is complex is to prevent corruption. To make it clear what actions merit what type of tax breaks. If a rule is written too simply, then people or investments not intended for deductions will get them. A good rule must be very specific and well written to prevent corruption and to prevent benefits going to the unintended.
    Thanks.

    March 24, 2012 at 5:30 pm | Reply
    • Bruce

      Complexity does not prevent corruption. It allows loopholes to be hidden everywhere. OUr tax code is about as corrupt as it gets. THat's why the lobbyists spend so much money to get the loopholes.

      March 24, 2012 at 6:38 pm | Reply
  16. degrees_of_truth

    Income tax simplification:

    1. Eliminate AMT.
    2. Eliminate all itemized deductions for individual returns.
    3. Add a couple more brackets for highest incomes.
    4. Adjust rates to taste.

    March 24, 2012 at 5:31 pm | Reply
    • AJ

      i like this, but i think you need to expand it. Everything counts as income
      1) healthcare you get from work: taxable
      2) Children: no tax deduction. people without kids should not subsidize those with kids
      3) mortgage? no tax deduction. renters should not subsidize homeowners
      4) charity? no tax deduction
      5) non-working spouse: no deduction. why should singles subsidize married people\
      6) Dividends, cap gains, etc. pay same tax

      Bottom line: if it is income you pay same tax as everyone else with same income. government should be trying to encourage or discourage any of this. let people make their own lifestyle choices without that interferance

      March 24, 2012 at 5:51 pm | Reply
      • Harlon Katz

        How about getting rid of the marriage penalty – why should married people pay more than two single people living together?

        March 24, 2012 at 7:20 pm |
      • AJ

        Harion – The way i would like to see it is every single person would be taxed on their earnings (meaning anything you received as compensation would be taxed – a company car, company healthcare, cash, etc). So a woman would earn x amount would be taxed on that amount whether married or single. her husband or boyfriend living with her would be taxed on the amount he earned. if you want to be married, that's fine but it doesn't help or hurt your personal tax situation at all. If your spouse decides not to work, great for you...but you aren't getting a deduction for that. If you have kids, great for you...no deduction. you are taking care of grandma....no deduction. you are taxed on your individual income.

        March 24, 2012 at 9:00 pm |
  17. tcaud

    From the guy who brought you "Senior Stress Month" last July, comes a new proposition the entire 99% will hate: FLAT TAX.

    Seriously, this guy deserves a pay cut. And a wealth tax.

    March 24, 2012 at 5:33 pm | Reply
  18. Richard

    A VAT may very well make sense. But, implementing it fairly is a big problem. It will hit those about to retire very hard. They have spent their lives paying income taxes under the old system, and then will have their expenses increased by 20% or so just as their income goes away and they are living on savings. This never seems to be mentioned by the VAT fans. A tax rebate for retirees? So much for the 2-page form!

    It would be nice

    March 24, 2012 at 5:34 pm | Reply
  19. Brian

    No deductions for children. Time to stop promoting 19th century family planning tax breaks that turned into a welfare scheme. I know an unemplyed guy who has 6 kids with 3 mommas who makes as much on his refund as I pay in taxes each year. Makes me furious.

    March 24, 2012 at 5:39 pm | Reply
  20. AJ

    Why all this anger at consumption? "Third, American’s consume too much, often using credit and leverage to do so. A consumption tax would moderate this behavior. Government will always get less of a behavior it taxes and more of what it subsidies." Do Americans consume "too" much? Who is to say? I feel I only have one life to live and my goal is to consume as much as life as to offer before I die....travel, food, movies, books, M&Ms, clothes, etc. Why does Zakaria (or anyone else for that matter) think what gives me enjoyment should be reduced? Is it because they enjoy different things? Also, I enjoy buying things on credit and using leverage. Why would I ever pay off a low cost home equity loan, mortgage, or student loan when I can earn much better returns elsewhere? Does Zakaria know what is the best amount of leverage for me to have? It certainly appears that way. Seems like the hight of arrogance to imply that you know what level someone else should consume at or borrow better then they do. Can someone please explain what part of this statement by Zakaria they find so appealing?

    March 24, 2012 at 5:41 pm | Reply
    • Richard

      AJ: You have entirely too much already. I want several of your books and ALL your M&Ms. Fork 'em over.

      Signed,
      Zakaria

      March 24, 2012 at 5:45 pm | Reply
      • AJ

        when my wife says i am eating the M&Ms "like there is no tomorrow"....i point out articles like this! LOL

        March 24, 2012 at 5:57 pm |
    • dsmith43081

      If Americans did not over-consume there would be no big retail stores like K-Mart and Macys.

      March 25, 2012 at 3:13 pm | Reply
  21. Calminteno

    Yep, 1 for the idiots aka tea party and the 2nd for normal people.

    March 24, 2012 at 6:13 pm | Reply
    • Harlon Katz

      Your comment exposes you as the only true idiot....

      March 24, 2012 at 7:21 pm | Reply
  22. TJeff1776

    Some writers herein are penning "we are the United States, we can't be like other countries. We can't have a health system like others. We can't have a tax system like others, etc etc etc". ..... WHY the hell not. ???? What sets us apart from the rest ?
    They certainly look human to me. In fact, most of our lineages came via them. Nearly all inventions came from, or had its roots, in them.

    March 24, 2012 at 6:13 pm | Reply
  23. Lou AZ

    "Something unpleasant is coming when men are anxious to tell the truth.” – Benjamin Disraeli

    March 24, 2012 at 6:14 pm | Reply
  24. Brooklyn Boy

    A simplified tax code will never happen.
    A huge industry is built around the fact that our tax code is confusing and overly complex. One way or another, that industry and it's lobby muscle will see to it that the status quo is untouched.

    March 24, 2012 at 6:17 pm | Reply
    • The Transaction Tax dot Org

      Be not afraid or defeated!

      March 24, 2012 at 7:10 pm | Reply
  25. The Transaction Tax dot Org

    The Transaction Tax or APT Tax could fit on 2 pages. It is a very small tax (about 0.35% from each of the payer and the payee) on every movement of money (transaction) in the economy. It is collected automatically at time of payment or deposit. There are no exemptions, loopholes, refunds, etc. It replaces all other Federal Taxes; income, payroll (SS/Medicare), fuel, excise, inheritance, etc. One tax / one rate.

    A wage earner who doesn’t save any money making $50,000/yr. in wages, interest, profit, etc. and spending all of it, would pay $350 in taxes (with no paperwork). If he saved half of that, he would pay $175 (plus 0.35% of interest/dividends paid on savings). Compared to the current system:

    Income Tax Before Deductions and Credits (Current System) $8625
    Social Security and Medicare if income is all wages (Current System not counting current payroll tax holiday) $3825 [double if self employed]
    Add in fuel, excise, and other federal taxes.

    March 24, 2012 at 6:21 pm | Reply
    • The Transaction Tax dot Org

      At first look this appears to be a regressive tax, but it’s not, since high net worth/income individuals or companies have many transactions that are currently not taxed or are deferred, e.g. equity swaps, carried interest, foreign currency exchanges, etc. which would now be taxed as a transaction.

      I ran a spreadsheet comparing 20 turns of $100 Million (stock trades, etc. – e.g. buy $100 million sell it at a profit, immediately reinvest all of it, repeat).

      The left column is simply compounding "carried interest" on 1% return on investment
      The center column is the total transaction tax at .35% on the sale, and associated buy.
      The 3rd column is the value of the portfolio after the transaction tax.

      Current System Transaction Tax Value after Transaction Tax
      $100,000,000.00 $350,000.00 $99,650,000.00
      $101,000,000.00 $704,525.50 $100,646,500.00
      $102,010,000.00 $711,570.76 $101,652,965.00
      ...
      $119,614,747.57 $834,372.67 $119,196,095.95
      $120,810,895.04 $421,358.20 $120,388,056.91

      Current Tax System
      Profit Before Tax $20,810,895.04
      Capital Gains Tax $3,121,634.26
      Net Profit $17,689,260.79
      (If it was earned income with no deductions, the tax would be around $5.6 Million)

      The Transaction Tax
      Net Profit after accrued taxes $20,738,056.91
      Total Transaction Tax Paid $14,590,448.04

      There are an estimated $1000 trillion transactions/yr in the US economy.

      March 24, 2012 at 6:21 pm | Reply
      • Chris

        There's one problem with your math.. you assume capital gains tax under the current system, but you do realize that you need to hold the investment for a year before you are taxed at the capital gains rate. 20 "turns" at that tax rate would take over 20 years.

        March 25, 2012 at 1:23 pm |
      • The Transaction Tax dot Org

        Chris – there are special rules if you invest in like investments which defer the tax. E.g. if I buy 100 shares of a stock, sell it when it rises to a certain price point, and repurchase it at a lower price in a short time frame, it isn't taxed. This is, of course, a very simplistic model, but even running it paying earned income rates, you would still be considerably ahead profit wise under The Transaction Tax.

        If they were paying 35% income tax on each turn, the results would be:
        Net Profit $13,099,791.55
        Total Income Tax $7,053,734.02

        March 25, 2012 at 8:54 pm |
    • The Transaction Tax dot Org

      Use the calculator at thetransactiontax (dot) org to see what your tax burden would be and compare it to your federal return this year. (Remember, this is the only Federal Tax you would pay, no more Payroll, Excise, Income, Inheritance, Fuel, etc. taxes).

      Main objections:

      1. De-motivates campaign contributions from those looking for special tax treatment in the tax code since the tax is on the movement of money not income, profit, consumption, etc. and is the same for everyone. (Though I would raise it for money leaving the US economy and exempt it for money coming into the US economy.)

      2. Tax accountants and attorneys would need to cross-train. It is estimated that hundreds of billions of dollars are spent each year on tax planning and management.

      3. It provides sufficient revenue for the government to operate without a deficit to the budget and surpluses could be used to slowly retire the federal debt and make investments in education, infrastructure, and healthcare to have an educated and healthy population to build the nation. Additional surpluses could be reserved for future economic needs. Investors would have to invest in private equities with studied risk rather than enjoying the security of the government’s ability to collect taxes to pay interest on the debt.

      March 24, 2012 at 6:23 pm | Reply
    • Mike Rotchitches

      VAT is regressive. In parts of Europe where VAT are used. Capital gains are not taxed via VAT. It's clear that in the USA, capital gains will remain the sacred cow. And VAT fraud is rampant in Europe. I think you're taking it for granted in your calculus that capital gains will be taxed. This isn't likely to happen.

      March 24, 2012 at 9:41 pm | Reply
      • The Transaction Tax dot Org

        Mike – The Transaction Tax is not VAT. Nothing is exempt, not capital gains, not income, not charitable contributions, not mortgage interest, ... nothing. It is collected when the money enters or leaves your account (higher if cash). Look at the table I put up - the net profit for the investor was higher than gross profit minus capital gains, yet 460% higher revenue was generated via The Transaction Tax. Visit the sites http://thetransactiontax.org and http://apttax.com to learn more.

        Yes there will be monumental resistance but if enough people understand it and then work to find candidates that will make it happen it will improve things dramatically.

        March 24, 2012 at 10:07 pm |
  26. Greg

    There's nothing "ironic" about the fact that a VAT is regressive. It's called "economics". There are ample ways to simplify the tax code that do not move us to a regressive system that perpetuates income inequality and capital hoarding.

    That said, something has to give because the tax code IS the root of all evil in our government!

    March 24, 2012 at 6:25 pm | Reply
    • Jeff in San Diego

      Not necessarily regressive if the VAT raises capitol and ends corruption. Without corruption by monied interests, perhaps the goals of our government will shift to helping the people – education, environment, infrastructure, jobs, training, research, space exploration. We've abandoned these aspects of our system in favor of curtailing favors to corporate interests and the banks.

      March 24, 2012 at 6:46 pm | Reply
  27. Gino

    The rich live on DIVIDENDS. Nobody has mentioned that. Dividends are taxed at 15%.

    March 24, 2012 at 6:26 pm | Reply
    • Publius 13

      Dude, the rich live on clipping coupons from tax-exempt munies. Tax rate: 0%.

      March 24, 2012 at 11:00 pm | Reply
  28. jerome

    2 page? This administration can get it down to 2 lines:

    How much did you earn?

    Send it in.

    March 24, 2012 at 6:27 pm | Reply
  29. blake

    I am open to the possibility of replacing our current taxing system with a flat tax (on income or sales). But would strongly resist having both a national income tax and a national sales tax. Uncle Sam is morbidly obese, spending $1500 billion annually he doesn't have. He does not know how to say NO. So the American people must clearly and firmly tell him NO.

    March 24, 2012 at 6:33 pm | Reply
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