jambaugh said:
That having been said, the problem is that the state has discretion as to who gets taxed how much. A flat tax, equal for all income levels and means, i.e. the same rate for dividends, capital gains, passive and active income with no tax breaks for any reason would solve this. Eliminate corporate taxes all together since they result in double taxation. Successful corporations will be successful because they are more efficiently productive in a competitive market and not because their lobbyists have the ear of the senior legislators. Their profits either go toward taxable channels i.e. dividends and salaries, or toward capital growth (taxed as shareholder gains) and additionally growing the economy i.e. producing more jobs, more cheaper products of better quality, and higher quantity. You get rid of much of the "necessary" spending the State utilizes taxes to do while increasing the tax base they receive. Everybody wins!
I agree that taxing only personal income (regardless of source) is a better way to do things economically regardless of whether it's a progressive tax or a flat tax (in other words, the flat tax part is both of secondary importance and highly unlikely).
No matter what you set the corporate tax rate at, other countries will respond and set theirs a little lower than the US rate. That's something that just accompanies being the largest economy in the world. We basically set the international level. And, a developing country desparate for jobs will set their corporate tax rates significantly lower than the developed world (so third world countries would hate us if we totally destroyed the concept of corporate taxes).
Still, the benefits of taxing only personal income would be something that would have to be seen before the general populace could appreciate them. On the surface, relying only on personal income would look like a huge incease to most people - especially if you used a flat tax. A flat tax would be a real increase for most people since the top 10% (those over $115k - $120k) are paying over two thirds of the nation's income taxes right now. Meaning however hard it would be to transition to just personal income tax, transitioning to a flat tax would be even harder.
Even though corporate taxes wind up being a flat tax included in the price of goods, eliminating them isn't guaranteed to produce an immediate reduction in prices, either. Just watching the rise and fall of gasoline prices should show that. The gasoline industry really does gouge customers on prices, just not where consumers expect it. The gouging occurs when the price of gasoline is dropping. Rises in retail prices react quickly to the cost of oil, refining the oil, etc, but drops in retail prices react slowly to drops in the cost of oil, refining, etc. Likewise, consumers would see a benefit in the long term, but the reductions in prices would be gradual instead of dramatic, making the conversion to personal income taxes even less popular immediately after they were implemented.
In other words, you're hoping for the impossible. It's easier to pass invisible taxes like a corporate tax. The consumer pays those kinds of taxes without realizing it and so they don't complain.
Note: Unrelated, but I came across a couple interesting facts about medicare. 63% of medicare expenditures go to just 10% of medicare recipients. During the last year of a person's life, they consume 4 times more than the average recipient in medicare benefits.