MARCH 2024 RADICAL SIMPLIFICATION OF THE INCOME TAX - ISSUES AND OPTIONS

option—combines the simplification of the first propos- al and the 25% minimum tax rate and 10% value-added The third option, “Back to the Future,” incorporates tax of the third proposal to fund a substantial Univer- the simplifications in the first approach and raises sal Basic Income (UBI) program that would raise the the standard deduction substantially (to $100,000 for personal credit to $3,90. [...] Moreover, because taxes are that generate complex tax systems—the existence of deeply embedded in the nation’s economic, social, and policy trade-offs, the role of lobbying in the political institutional structures, the sweeping changes involved process, and desire of taxpayers to reduce their own in systematic simplification of the income tax would tax burdens—cannot be legislated away. [...] Indeed, the enactment of subsidies for policy makers wanted to monitor and reduce the com- one group typically generates demand for subsidies plexity of the tax system, it would be difficult to know for related groups, in the name of equity.15 Moreover, how significant their effects would be in the absence some professions (especially tax lawyers and tax of better data.17 Finally, the economic and. [...] benefits from the deduction would flow disproportion- ately to the highest-income taxpayers, with more than However, the preferential rates also create a number half of direct tax benefits flowing to households in the of problems, and make the tax system markedly more top 1% of the income distribution. [...] pay for the UBI or increased standard deduction must come from somewhere in the tax base, and in the case The last proposal essentially substitutes a higher of our reforms, this burden falls primarily on the top of personal credit (i.e., a UBI) for the higher standard de- the income distribution.