I'VE FOUND THE

perfect new tax system for America. You'll never guess where.

Printed and stacked, America's tax code stands as tall as an average man. It's a marvel of confusion and waste. Picture a store clerk who tosses 50 cents in the trash for each dollar he puts in the register. For each dollar wage earners and companies pay in tax, they spend nearly 25 cents in time and fees figuring out how much (or little) to pay, while another 25 cents, reckons the Treasury, goes uncollected due to cheating.

Yet strip this wretched stack to a few pages and you'll find our perfect tax. Liberated, it would require no yearly filing of forms and would ensure everyone pays their bit.

It's a tax on income. Some would replace this with a bigger tax on purchases, but the experience of other nations has shown that a high national sales tax spurs illegal trade, just the sort of market perversion a good tax avoids. Our tax takes a greater share from high incomes than low ones. Advocates of a flat tax call that a punishment for success and that's a fair objection, but taxes that tilt in favor of the poor at least acknowledge how much more difficult it is to save up that first thousand dollars than the thousandth thousand. And our tax, although it should surely be smaller, is already comparatively modest. Americans, on average, pay a quarter of their income to the government. That's 10 percentage points less than the average for rich nations.

This tax takes just a few pages to explain, and even it can be made simpler and better. We have six tax rates, but would do fine with three. We tax dividends and capital gains at lower rates than wages, but should call all of them ordinary income, for reasons I'll explain in a moment. And we leave it to Congress to propose rate changes. These proposals should be made each year by the nation's independent accounting office, based on whether the government spent more or less than the tax it took the year before. Congress would still have the final vote, so it could overspend in a pinch. But parties would compete to reduce spending to lower the next year's rate. Politicians would no longer trumpet tax cuts while quietly borrowing to pay for them. (The additional $1.7 trillion or $11,000 per taxpayer in public debt our government has run up since 2002 comes to mind.)

And what of the rest of the stack? Most of it we'll be better off without. Some of it is worth keeping, but must be moved.

First, the pages that belong in the bin. Some taxes have nothing to do with wealth creation, like rich people dying (1% of government revenue). Others burden the poor more than the rich. There's an enormous "payroll" tax (35% of revenue), for example, which applies only to wages below $100,000 or so. These taxes should be folded into the income tax, thereby spreading the burden among all taxpayers.

Some pages tax money that hasn't even been pocketed. The word "corporation" might conjure an image of rich people in suits, but corporations are entities that distribute money to rich and poor alike. They pay wages and perks to workers and profits to owners, whether in the form of cash (dividends) or rising share prices (capital gains). We already tax that money wherever it lands. We shouldn't tax it in transit, too. And we're not good at taxing corporations, anyway. The rates we present to them are among the highest in the developed world, so they cheat, leave or pretend to be individuals. Ones that stay as corporations scramble for loopholes, but still pay rates that are several percentage points higher than the average for rich nations. And for all of it, what do we get? Corporate tax receipts have dropped to 15% of government revenue, from 25% in 1950. And we have lost good jobs.

Better to turn America into the world's largest tax haven by abolishing the corporate tax. We'll make up the lost revenue by taxing dividends and capital gains at the same rate as wages, and in doing so, we'll treat the shareholder and mill worker as equals. Manufacturers that have fled will return. New ones will join them. They'll bring better jobs and higher wages.

On to the part of the stack that must be moved. It describes something economists call "tax expenditures." You know them as deductions, exemptions, credits and deferrals. Really, they're perpetual spending bills in disguise. Some are worthy. Others are waste. Many do harm. None belongs in the tax code.

Consider the mortgage interest deduction, the third-largest tax expenditure. It will cost $100 billion this year, or approximately $650 per taxpayer. Lawmakers could simply collect this money in tax and distribute it via checks to people who have taken out loans to buy houses. But that sort of "tax-and-spend" initiative would be decried as expensive and meddlesome. So, like the uncle who produces a magic quarter from behind a child's ear, they draw attention to $100 billion in "tax relief," while ignoring that we all pay for it with higher overall rates.

Moreover, many tax expenditures flow only to people whose incomes are high enough to make claiming them worthwhile. Low-income homeowners get no break on their mortgage interest. Also, tax expenditures escape the yearly budget debate. Their cost doesn't show on the national ledger. Whereas spending plans must be renewed, tax expenditures, like diamonds, are forever. Do nothing and they continue. The politician who tries to abolish one is accused, preposterously, of trying to raise taxes.

And so our tax law has accumulated 163 spending programs, up from 67 in 1974. This year the ledger will show the government spending $2.9 trillion. (That's some $410 billion more than it will collect in taxes, with the difference becoming debt or, as I think of it, tax waiting to be collected.) But the government will spend another $1 trillion on programs that are hidden in the tax. Listen closely to the promises of politicians this year. See how many offer new deductions, credits or other forms of "relief." Soon that stack will be as high as a basketball rim, and that store clerk will be throwing out 75 cents for every dollar in the till.

Spending programs belong in spending bills, not in the tax code. Sun-setting all tax expenditures would force a grand battle among lawmakers over those that deserve saving as proper spending bills. And we'd be forced to reconsider the role of government. Maybe payments to house buyers are part of the American dream, or maybe they've artificially inflated demand, making homeownership less affordable by helping push house prices up $1.50 for each $1 incomes have risen over the past two decades. Maybe the government should pay part of the cost of health care directly to citizens instead of routing payments through employers (by far the largest tax expenditure), which makes workers who already depend on the boss for paychecks depend on him for doctor visits, too. Maybe tax breaks for turning corn into fuel (a process that uses nearly as much crude oil as it saves) have caused a ballooning of feed grain prices, inflating the cost of meat and milk. Maybe people can decide for themselves how and when to save and spend money, and the most "tax-advantaged" plan involves low, fair rates on all income and interest, and not a funhouse maze of 401(k)s (our second-largest tax expenditure), IRAs, 403(b)s, SEPs and Keoghs.

Dollars for tuition should be paid through a single benefit administered and assessed by the Department of Education, instead of being scattered through the overlapping and conflicting Hope credit, Lifetime Learning credit, Coverdale savings account and 529 plan. The earned income tax credit, a popular tax expenditure that provides aid to the working poor, will work just as well as an earned income payment, rolled up neatly with Temporary Assistance for Needy Families.

But we can figure out the fine details later. For now, even if we change nothing about how money is spent and merely move spending programs out of the stack, we'll be much better off. All spending will show on the national ledger. All of it will become part of the debate. And we'll do away with the dangerous notion that our national pension and health-care programs for the old, as important as they are, are "entitlements." All of America's entitlements are listed in its Bill of Rights. They're free. Everything else must be paid for. Deciding how to fund or change Social Security and Medicare won't be easy, but it will never again be as easy as now.

And now I'm afraid I've taxed you by making this essay so long. Sorry for that. In my defense, the document I'm trying to replace is 16 million words longer. Fixing America's tax system will do more than increase convenience and cut costs. It will determine to what extent government should tell all of us how to live: how many children to produce, which sort of box to live in, whether we should marry and when we should stop working.

The stack might seem more powerful than parties or politicians. Our last two presidents campaigned on promises to shorten it, but its height has nearly doubled during their watch. It has grown tenfold since 1955. But simply stripping it down to its essence can work, because it avoids two things that have killed past reform efforts. It doesn't erase the spending plans that make crowds cheer. It just moves them to their rightful place, where we can judge them fairly. And it doesn't create a radical new tax. It merely frees the one we're meant to have now.