The current system requires six tax rates ranging from 10 percent to 35 percent to raise the $912 billion in federal individual income tax revenue expected in 2005. That amounts to an average tax rate of 19.5 percent. If all personal income were taxed instead, the same revenue could be raised with rates ranging from just 4 percent to 17 percent. That would amount to an average tax rate of just 9 percent—less than half the current effective rate.
High effective tax rates required by narrow bases hurt the nation’s economic performance and lower the standard living for all Americans. As the President’s Advisory Panel on Federal Tax Reform prepares its recommendations it should place a high priority on identifying ways to broaden the federal income tax base.