Some uniform, consistant method of collecting taxes should be used. For example, every person could be taxed at 20% of all income including wages, capital gains, inheritance, and so on. The key is to tax as consistantly as possible, with none of the loophole games of the current system.
Besides the flat tax mentioned above, another consistant method is to use a strict mathematical formula, like the following:
When using this formula, we define “1” on the X scale to be the median family income (MFI) according to the latest US census (which, btw, needs to start counting “family” in the same way as the tax system does, if it doesn't do so already). The Y scale is the tax rate. For those families below 1/2 MFI, they pay no taxes (and may or may not get a rebate, depending on the laws). Above 1/2 MFI, the tax rate steadily increases. The value of “N” can be set to determine the rate at which the taxes increase, and the value of “M” is the maximum tax rate. I believe values around 0.9 are reasonable to M, and values around 10 for N. This yields a rate of 0% for those families making $31,114 (according to the 2000 census), a rate of 10% for those making $70,006, a rate of 25% for those making $150,591, a rate of 50% for those making $420,000, and so on. It can also be seen that there is no gross income which makes less net as a result of taxes than a lower gross income (the, “
if I were making less total, I'd end up with more money” syndrome) by taking the function:
It can be seen that for values of X larger than 0, this is a monotonically increasing function. (see FooPlot to graph these functions)
Another advantage of this method is that decreasing the tax rate simply requires changing “M” (the maximum tax rate) or “N” (the tax increase rate), either of which affect all tax rates at the same time. Since it is based on the median income from the latest census, it doesn't need to be revised periodically just because income levels change, and it also benefits everyone when the median income increases.
Another possibility is to tax only land, as in Geolibertarianism. The idea is that selling goods and services is a beneficial activity, so we would rather encourage it (instead of tax it), and earning income (for doing work) is generally beneficial, so we should encourage that as well. Owning land isn't inherently beneficial, so the idea is to encourage land ownership only if it is being put to good use, as in used to generate income in some way. This prevents land being owned merely for the sake of owning land. See also: “Community Land Trust”
A third suggestion is to tax (non-renewable) energy consumption exclusively. Among the benefits is the amazing simplicity in which it can be done: tax directly at the source, when the fuel is consumed for licensed businesses or when the fuel is purchased. The entire IRS, all the tax preparers, etc, would sadly be out of jobs, but that's hardly the worst thing I've ever heard. This would clearly be impossible for our existing government, since tax evasion is their favorite “
crime that we can pin on anyone”, but starting from scratch it might be a simple way to start getting the taxes rolling in with minimal manpower required. A slight alternative would be to tax all non-renewable resources (ie, not just oil and uranium, but also silicon, gold, etc) as they are taken from the ground. This would give a great incentive towards efficiency and recycling as well.
There are some proponents of a “Transaction Tax”, where each transfer of money (or goods?) is taxed at a single, small rate. It has been said that based on the number of transactions currently used in the United States, a tax rate of between 1% and 2% would be exceed the entire value of current federally collected taxes. This would also tend to benefit almost all people, since most people only get money from their employer, and then give that money to one other company (the place where they spend money to buy any given item). It would also prevent money from being meaninglessly shuffled around, and it would help ensure stable investments were popular. One possible negative effect is that it would give incentives to form strong vertical monopolies. Since all Monopolies tend to damage small businesses, this could discourage growth. However, this would only be very significant when margins are very small to begin with, which are not usually high growth areas anyway.
A completely different approach would be to tax the Member States based on some consistant method (e.g. population, population+cost, area, area+population, etc) and then require each Member State to collect funding in whatever method it chooses (any of the above methods, or something else entirely).