[Mark1808]

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Adios,

Almost everything you wrote is true, Buffett and I just think it is unfair. Where I quibble is it is not difficult to treat incomes the same. Buffett has already proposed an unlimited IRA to shield investment income until its converted into consumption. I'd go a few steps further,

1) abolish corporate income taxes to eliminate double taxation of earnings.
2) allow taxpayers to put all investments in unlimited IRAs so they can compound tax free until the taxpayer wants to withdraw and spend the money.
3) eliminate payroll taxes, support SS and medicare from income taxes. To make this possible, restrict SS and Medicare eligibilty to people making less than median income and pro-rate it against income. SS is supposed to be a safety net, make it that and nothing more.
4) tax all income, whether W2, dividends, muni bond interest, capital gains or IRA distributions the same with three brackets. Zero up to half median income, 15% up to three or four times median income, and 20% above that, no deductions, no exemptions.

Your tax form would be about five lines. You'd never have to track stock sales and purchases for tax reasons. A million smart people who are wasted working on tax forms would suddenly be available for more productive purposes. EITC can go away, no longer needed. IRS staffing could be reduced tenfold, once again diverting resources to better things. And since payroll taxes skew supply demand curves for employment we'd actually see a reduction in unemployment among lower income brackets.

And lastly, its fair. If you make the same as your neighbor, you can be comfortable knowing you will both contribute the same in taxes.

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I love the concept and agree that it would make for a much better and more fair system. However, I think you would see a tremendous revenue short fall under that system. It is my guess that the marginal rates you quote would have to be significantly higher to generate the same revenues.