These changes would increase tax revenue, stimulate economic growth, end the distortion of economic decision-making that the interest and depreciation deduction cause, eliminate or reduce “financial engineering” as a form of entertainment for the wealthy, simplify the tax code, streamline the IRS (which is already very efficient, if not very effective – but that’s about Congress’ tax code). Such changes would attract businesses and, contrary to some arguments, not drive wealthy individuals away. Where would they go? Columbia? Jamaica? The Caymans? Chad? Kenya? Please… These changes would also eliminate of non-productive work for such highly skilled and intelligent professionals as lawyers and accountants, thereby, driving them into productive employment and enormous economic waste that this work entails. They would reduce significantly or eliminate the need for the IRS to sue companies for tax avoidance (they do this a lot, btw) and redirect their efforts to collecting taxes in a straightforward way. Last, they would reduce significantly or eliminate incentives for businesses to lobby Congress, the Executive Branch and the Judiciary (yes, the Judiciary…) for favorable tax treatment under the tax code. Think about the productivity improvements you would see in Congress. Think about the how these changes would reduce the advantages that established companies have over new competitors and small businesses who can’t lobby for special treatment or that can’t take advantage of the interest deduction until they’ve established credit. The imbalance between the cost of debt and the cost of equity would shrink to a small premium for debt (no benefit of ownership or control with debt).

So, that’s it: eliminate taxes on business, flat taxes and tax individuals without exemption or deduction at aggressively progressive rates.

But there are many other issues besides taxes, not the least of which is the incredible level of regulations that businesses must deal with. Leveling the playing field for small business will take more than tax reform.

Examples: Nuclear energy, toxic material (remember asbestos), medicines and medical devices, Building or all sorts need building codes so they do not fall in earth quakes, catch fire from bad wiring, the radio spectrum needs to be regulated or just have noise not cell phones. As the salesmen think up more odd securities and deals they have to be regulated.

We can make the market place more completive by trust busting firms more than double economic scale and giving firms less than half economic scale incentives to merge.

The question is who determines what economic scale is in any line of bossiness.

Federal Income tax should be based on Earnings before Interest, Taxes and Depreciation. And it should be tiered just like individual tax rates. The first $million in EBITDAD at 10%, $10 million at 10% all the way up to over $1 billion 25%.

Most companies create accounting losses (and thus no income tax) by using debt and depreciation (also here depletion allowance). The beauty of this tax plan is that very few companies will be able to avoid taxes, and those that don’t leverage up, don’t over pay for acquisitions (writing off goodwill), and don’t push revenues into off-shore tax havens (supposed foreign tax) will be on the same playing level tax wise as the GEs, Mercks, Exxons, etc. of this world.

Corporate Income tax used to provide over 1/3 of Federal tax revenues in the 1950s but today it is less than 15% – more than 50% drop. IT has been the middle class that have picked up the tab. Plus in the 1950s many corporations provided pensions which have nearly disappeared. Another cost push to the middle class. IN the meantime, executive pay has skyrocketed (even the Swiss can’t take it anymore).

When large multinationals pay more in lobbying DC than they do in Federal Income tax, then we all understand who really runs our government and tax policy. It has nothing to do with economics but with greed. The result has been a US economy that is too leveraged, too reliant on old entrenched industries (oil, mining, agriculture, autos, and finance) to the detriment of the small entrepreneur who is really creating jobs of tomorrow.

With sufficient abundance, most will win a satisfactory hare and the society as a a whole could actually support a VAT to keep the least well off in dignity.