There is a risk when most revenue comes from a possibly avoidable tax, although any tax seems in principle open to gaming. But we have had higher income-tax rates before and widespread evasion was not a problem. The main evasion is the legal form, e.g. General Electric’s tax division comprising something like a thousand lawyers.
There is always a calculation re getting agreement in Congress.
Social Security has a cap because its payouts have a limit. This makes it more palatable, or at least protects it from looking like straight wealth redistribution. Removing the cap without allowing uncapped payouts makes it more like welfare. A cap lift needs to be matched with a payout increase, but that can have a progressive differential. That is, we can increase the amount of taxable income by X amount while increasing the payout by less than X proportionally. Or we can try for a slight rise in the cap while leaving the payout alone.
An income tax, or profits tax, is the best revenue generator because the goals of the taxpayer and the government align. Both want more (or at least enough), and when more income or profit is generated there is also more revenue. Because profit taxes don’t impede investment or R&D, it’s hard to listen to arguments they are bad for business.
If there were one major reform I would consider, it would be replacing the personal income tax with a personal profits tax. This would allow individuals to deduct all their living expenses (rent or mortgage, bills, food costs, school costs, medical costs, wardrobe, cars, etc.) as do businesses. The result would be at least somewhat progressive, in that the majority of people spend the majority of their money on regular outlays for the above expenses, while the wealthy can’t easily find enough allowable deductions for living expenses to escape taxes.
This looks simple, but like any tax the definitions are the source of complexity. What is income? What is profit? The first question leads to all the provisions for this and that deduction or exclusion. The second also requires complex definitions for what is an allowed expense.
Even the supposedly simple “flat income tax” needs a starting point, as to what is the level of taxable income. So it begins with at least a semblance of variable-rate action.
Because the tax question is complex and tends to be driven by ideology (at least for the anti-tax crusaders) we should always reference previous tax regimes and how they correlated with the economy’s performance and the appropriate social indicators. A significant number, for me, is the large decline in the portion of revenues that come from corporate taxes. It has been as high as 40% during WW II, and still as high as low 30s when Eisenhower was elected. But it has declined steadily since then, going as low as about 5% in 2008 (crash), and returning to about 13% in 2013.
David Foster Wallace did a short stint as an examiner for IRS. His research for his last novel “The Pale King” includes the policy shift that occurred under Reagan, which required IRS to yield more revenue with less expert staff. This led to switching the scrutiny from large businesses to smaller ones and individuals, and may account for some of the decline in business tax contributions.
But in general I warn against thinking of taxes as punitive, because that delegitimizes taxes, and makes it easier to argue they impede business, kill jobs, etc. Taxes are contributions, and are best configured when they are scaled to the source appropriately, and align with positive outcomes and not perverse incentives. The latter is exemplified by a business-tax provision that allows retraining staff as a deduction, but can be applied to training offshore labor. Adding an exclusion that prohibits taking the deduction for offshore labor or automation is one of ways taxes get complicated, but without that the perverse incentive prevails.
The complaint that taxes are complicated is weak because one can always take the simple approach, trading what might be reduced taxes for ease of filing. Profitable business always depends on watching the details and not being casual about expenses. Somehow certain people think they can argue taxes should be simple when life is not.
Filing could be easy, however, if the IRS simply sent you a pre-filled form, which you could OK or alter. All payments that call for a W-2 or 1099 are recorded at IRS, and disbursements such as dividends or interest payments are likewise known to IRS. This would require more staff at IRS, which means a larger budget, so is another difficult sell in the current environment.
Side note: a carbon tax would not hurt New Yorkers much, as their individual carbon footprint is much lower than most of the country.