Mr. Bush,
News has been circulating that one priority of your second term will be “tax reform,” specifically simplifying the tax code. Indeed, it seems to have been one of the things your associate Mr. Mankiw was to discuss in his CNBC appearance this morning. If you are truly interested in simplifying tax code and closing loopholes, I have a proposal for you.
Make the standard deduction equal to the poverty line for a family of four, adjusted each year. This means nobody will ever be taxed into poverty. It also means you can eliminate any portion of the tax code meant to lessen taxes on the working poor.
Cap itemized deductions at 3 times the standard deduction. This has the intended effect of the original Alternative Minimum Tax — making sure the very wealthy do not itemize themselves out of taxpaying altogether — with none of complicated rules. Also, because it is indexed, it does not suffer from the “bracket creep” that ensnares some middle class taxpayers. The AMT could then be eliminated with no loss to government revenue.
Leave exemptions pretty much the way they are. This means bigger families will not be taxed into poverty either.
Add a half dozen high priority deductions that anybody can take, regardless of whether they itemize. I propose that these include money paid for Health Insurance premiums, mass transit (bus passes, ferry passes), IRA contributions, and adoption expenses. These items should be things that we as a nation agree are important.
At this point, the tax brackets may have to be reconsidered, but you have a team of people who can figure out what those rates need to be. Also, these proposals do not address corporate taxation, dividends, or capital gains. If these 4 steps are taken, any American whose income comes solely from a paycheck and maybe interest from a savings account can do their taxes on a one page form in less than an hour. This means improved compliance and accuracy. It means the IRS will need to spend less money printing forms and processing paperwork. Also, because these returns will be simpler, the IRS can concentrate on fraud and, more importantly, tracking terrorist funding.
Oh, and if you need an expert on tracking illegal funds, you might consider asking Senator Kerry. He has some experience bringing down money laundering operations.