Why not replace it with a tax purely on businesses? It's the same people who pay; making it a personal income tax just shifts the burden onto the backs of employees.
That would put a $700 Billion burden on the back of American business which would make them even less competitive with companies in low cost countries. If you can find some way to apply a proportionate amount on imports it might be OK. It will increase the cost of products though so it would act like a sales tax in that respect.
I don't agree with that exactly. Businesses are already saddled with that burden because the wages that they pay employees include the income tax that the individuals have to pay. Just because individuals are writing the checks to pay those taxes doesn't mean those taxes are not borne by businesses.
I think if the income tax was shifted 100% onto businesses, then there would be more pressure on the government to keep taxes low. The cost of taxes would be much more visible (and painful for the businesses to pay) and businesses have the legal and financial resources to better lobby the government for lower taxes. And small business owners are already paying individual income tax so I don't think there would be much difference (in cost or time) in filing a corporate income tax return instead.
And people seem to assume that businesses would just raise prices to cover whatever the additional costs might be. I don't think that's entirely true either. The cost of a product will still be determined by the laws of supply and demand and so businesses will only be able to charge what the market will bear. If their costs go up, businesses will either have to settle for reduced profits, or more likely, be motivated to improve productivity. That innovation would be good for the economy (in terms of new products and services to enable that increased productivity).
But regardless, if American businesses are to remain competitive in a global market, we have to drastically reduce the cost of doing business here in America. And that includes reducing the income tax rates, whether they are paid by individuals or by businesses.
