>>It would be hard to convince me that a system that doesn't allow a reasonable tax-free allowance would work well. With an allowance:
>>(a) Everyone receives the same benefit. In fact, arguably, the higher earners receive most benefit since they would otherwise be paying the higher rate on the amount.
>>(b) The cost of collecting (under your structure) less than $150 from a huge number of people would probably result in an increase in the size of the IRS - certainly not reducing it by 90% !
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>In the U.S. you can actually receive more back on your tax refund than you paid because of child credits. A single Mom who makes minimum wage and has 1 child will receive thousands more in tax refunds than she pays in and it only goes up from there (with more children). Receiving 1% of the first 15k is an improvement if you can believe it!!!
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>The reason the IRS would reduce by 90%+ is because audits become very, very simple to conduct if there are no deductions to prove/disprove.
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>>I also don't buy into the argument against child benefits/allowances. Again high and low earners benefit equally and, at the lower end of the scale, it can mean that children are not raised in poverty.
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>In the the U.S. there are plenty of housing assistance and food assistance programs to ensure children don't go homeless and/or hungry. Unfortunately a child doesn't get to choose their parents and there will always be way too many children raised in very, very bad environments (not just homeless/hungry but abuse too). There is nothing we can do about that. Sad but true.
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>>BTW I read this : http://finance.yahoo.com/news/Nearly-half-of-US-households-apf-1105567323.html?x=0
>>If I got it right then a family with two children would earn $50K before paying tax in the US. A rough calculation for a UK family in the same circumstances:
>>
>>Gross Income : £32,000
>>Allowance : £7,500
>>Taxable Income: £24,500 @ 20% : £4,900
>>Child Allowance recd: £1,700
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>>Net paid to govt : £3,200 ( i.e 10% of gross income)
>>
>>Applying your structure to a $50K earner I calculate that they'd be paying $6,650 - so, given the effect of UK VAT, maybe about the same ?
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>I think we should consider a national sales tax, also referred to as a consumption tax, because it encourages savings. In fact the Fair Tax book advocates eliminating all income tax and switching to a sales tax only system. It's an interesting read and did you know that a few of the world's largest economies are already run on a sales tax only system? It's true: Texas and Florida have no income tax.

If you eliminate income tax and rely solely on sales tax you effectively have a one tier tax structure. Main difference being that those who choose to live frugally pay correspondingly less - i.e. I could earn $200K a year, live in a shack in the mountains, and pay nothing :-}

And what about someone who derives a high income from the U.S. and chooses to live elsewhere ?