Our current income tax codes are the most complex and convoluted system man can devise. It has become a burden on all taxpayers and on our government to maintain. It is also a system that is highly unfair and open to fraud and abuse. My philosophy when it come to our taxes is KISS (keep it simple stupid). Our government needs taxes to pay for the programs we need. It is fair to ask the people who have the most to pay for the bulk of the dues. This is called a progressive tax system. I am all for it. I just don't like the complexity and the loopholes. And most of all, I don't like the social engineering by our elected officials to give tax breaks to some while penalizing others. If I was to design a tax system, I would lean towards a simple flat tax such as the one proposed by Steve Forbes. Who will be hurt by this system? The tax accountants, lawyers, financial planners, lobbyist and all businesses that deal with processing our complex tax system and the IRS. That may not be a bad thing. Who will be the winners? All taxpayers including you and me. The common justification for our current tax system is to bring up all the special needs of various groups. I understand there may be certain cases where a special tax exemption is necessary. I still think it is better to replace a gigantic bureaucracy such as the IRS with a simple tax formula that even a child can understand. Any special needs can be addressed by a separate organization so that people can appeal for tax credits similar to what the Small Business Administration does today.

What is the relationship between taxes and deficits? They are two separate things. Taxes have to do with raising money to pay for necessary services. Deficits are created by our elected officials who spend more than we have and waste some on pork projects. Most people think the pie is the same size. If we tax less, we will have less to spend. That is not true. Historically, every time we have reduced taxes, the revenue has actually increased. This may seem odd but if you understand economics, it is a natural result. The pie can actually grow depending on the right policies. In general, when the government tax and spend, the money is not a good incentive for improvements. When the private sector spends the same money, competition and free market takes over and it can generate prosperity and profits which may lead to more taxes.

Recently, some countries have adopted a value added tax (VAT) to replace income tax. This is basically a consumption tax. It is collected as a sales tax so the mechanism is already in place. The one problem I see is the possibility for fraud. In many cash operations, the sales tax can be misappropriated by the merchant. If a comprehensive point of sales system can be devised to reduce this potential fraud, I am all for it. This tax will automatically put the burden on the people who can most afford it. It will also encourage savings and discourage wasteful spending.
If there is one fault of the capitalist system, it is the promotion of commercialism and waste. We are constantly bombarded with ads to buy the latest gizmo and much is wasted on packaging.
Any mechanism to reduce some of the commercialism is good for the environment.

Even though I am a fiscal conservative, I do believe in paying taxes. I do want our taxes to be used for essential needs and not wasted by pork spending and social engineering. A few years ago, when there was a projected tax surplus, a debate ensued about tax cuts. How should the tax cuts be distributed? For me, the answer is obvious. It should go back to those that paid. The mantra of some was that the tax cut went to the "rich". It went mostly to the rich because they paid the bulk of the taxes in the first place. The question I have for those that claim it was unjust is this - If tomorrow, there was a shortfall and we find ourselves needing to raise taxes, who do you think will pay for it? The same "rich" will have to bear the burden. The definition of "rich" should be explored. What do you consider to be the "rich"?

When should there be a tax increase? It should be the last resort and only after all the fat has been removed. Spending cuts should be part of the natural cycle in government as it is in business. When times are bad, business cut back and so should government. There are a few exceptions. In times of war and major national disasters, we should raise the additional revenue to pay for it. Large deficits will not be viable in the long run. A government's finances are no different than a household's finances. If we spend more money than we make, sooner or later, we will go bankrupt. Common sense tells us that we should live within our means and the same applies to our government.

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