Discuss: Let's Fix Taxes this Week!

So this week I participated in a blog and the issue of how to fix the tax code came up. My answers appear with the questions below (with links for taxes you may not have known about) and I would like to open it up to you readers. If you were the tax guru and had the opportunity to fix the tax code, how would you do it? Use the questions below as your guide. I'd love to hear your opinions. (And you don't have to answer every question if you don't want to).

- Would you retain a progressive system or switch to a flat tax?
Flat tax. Hands down. It would involve no altering of the Constitution (like the Fair Tax requires). I would put forward a "20-20" plan, I would exempt the first $20,000 from any tax, then tax each dollar above that amount by 20%. I would also raise the interest income to 20% as well (currently it sits at 15%), so no matter where you make money, it's taxed at 20%. It would bring a steady flow in, and even if you live off your interest (meaning you don't pull an income), you would be taxed at 20%. Sounds fair to me.

- Would you decrease income tax and increase usage (eg, gas) taxes?
Sure. I know Libertarians suggest this all the time. They tend to follow a "legalize it and tax it" approach to things like prostitution and marijuana. I'm not a Libertarian, but I don't think it's a bad idea. If red states like Nevada and Colorado don't have a problem with it, I don't see it as a major issue.

- Would you alter our withholding system so employees keep more money until taxes are due?
No. the reason why it was put in place to begin with is because as a whole we tend to spend what we make. Some people are convinced that "they don't even pay taxes, because the government pays them," when actually they are getting a refund. Withholding enforces the idea of "out-of-sight, out of mind," and keeps people from going into bankruptcy when they get a $7500 tax bill in April.

Would you tie the AMT to inflation, scrap it, or leave it?
Scrap. AMT (Alternative Minimum Tax) was an envy tax, and now everyone is getting bitten. Let the government find a way to budget properly and cut spending, like the rest of us do.

Would you change SS (Social Security) and Medicare payroll tax rates? Change the SS cap? I might leave it the same, but I just don't feel as if I'm getting any SS anyway. SS is supposed to go under in 2042, just when I turn 62 and can start to claim benefits. Knowing that I probably won't get any return on my "insurance investment" will probably make me more reluctant to raise the cap on how much more of my hard-earned paycheck they can take.

- Would you (continue to) promote saving and investment through tax policy? Home owning?
You know it! Saving is very important, and we need to convince future Americans to save like their grandparents did, to have a supplement for Social Security. And I would favor responsible home-owning and discourage giving out loans to people who cannot pay them (like we see in the risky sub-prime market).

- Would you permit taxpayers to target a portion of their payment towards specific programs?Not a bad idea, as long as it's properly regulated. I wouldn't want people to cheat the system by having John Smith donating to the "Smith Family Empowerment Fund." However, it would be interesting to direct your tax funding to a certain government department (education, energy, defense, etc.)

- Would you change the child tax credit? Change rates for married filing jointly? Nah, I'm not heartless. The EITC and Child Tax Credit is helpful to families who need a little help sometimes. I would extend this. If you're married filing jointly, I would not penalize you for this either.

Would you eliminate the gift tax? The inheritance ("death") tax? To compromise, I would bring both down to the flat tax rate of 20%. 55% is kinda harsh. I agree money can be taxed "every time it changes hands," but we should be reasonable, so that we won't have an AMT-type problem in the future.

-Would you tinker with the rates for different brackets? With what goal in mind? See first answer above. My goal is to help educate people that they are funding the government and they should keep an eye on how their money is being spent in Washington.

Now it's your turn. Discuss!