Our country’s tax system should be fair, simple, cost efficient, and intrude upon peoples’ lives as little as possible. How can this be achieved?

Integrate payroll taxes with the income tax. Under the current system workers pay four taxes while the financially independent pay one. The following table illustrates the effect of income tax with standard deduction and exemption for a single individual in 1999, plus the three additional taxes workers pay—Social Security tax on employee, Social Security tax on employer, and Medicare tax.

Income earned “by the sweat of the brow” is taxed at higher rates than passive income (see table below) Someone with a $7000 income from a trust fund pays no tax, while a childcare provider, fruit picker, or house cleaner earning $7000 pays $1071. A bond holder with interest income of $32,000 pays $3743 in taxes, while a teacher, trucker or electrician earning $32,000 pays $8631. An investor with assets generating dividend income of $72,000 pays a $14,913 tax, while a doctor, lawyer, or merchant earning $72,000 pays $25,922

Tax rates on workers must be lowered. 43.3 percent on $33,000 is outrageous! 15.3 percent on the first dollar earned is too high. Income spent on rent, food, transport, and medical expenses should be taxed at a minimal rate. The present tax system tramples on the American ideal of hard work. After investing years of their lives education themselves and gaining skills which contribute to society, middle income workers find that the financially independent and workers earning over $72,600 are the favored ones who a re showered with gifts: generous tax breaks and lower tax rates. Some middle income taxpayers itemize, but most of the benefits of itemizing are reaped by high income taxpayers. Payroll taxes, which only workers pay, are not lowered by these tax breaks. The Social Security tax stops at $72,600. Our present tax system targets the lifeblood of this nation, middle income workers.

We must strengthen the fabric of prosperity with an IRA for every taxpayer. A fixed contribution of ten percent of the first $20,000 provides steady saving for a house down payment and retirement. The old adage “pay yourself first” becomes a reality. The national savings rate increases. In addition people without bank accounts are introduced to financial institutions and to the benefits of saving.

Taxes change behavior. People decide whether and how much to work on the basis of their after-tax wages. Replacing workers is costly in terms of education and the need to recruit from outside of the United States, yet our tax system encourages people to leave the workforce as soon as possible. America faces a great need for workers as baby boomers begin to retire from their primary careers. Shortages of teachers, nurses, pilots, emergency room physicians, police officers and computer scientists are appearing. To replace one of these workers a young person must invest four to eight years of his life education himself. The payoff? A 46.3 percent tax rate on a middle class salary!