In terms of businesses, I hold somewhat controversial belief that businesses should not be taxed. Their employees are taxed, and people recieving dividends are taxed. By not taxing businesses, we'd also balance out the unfairness in the system today, where large companies are able to offset all profits with deductions, and small companies which actually pay quite a bit. The point is to bring fairness to the tax system.
I don't know that I agree with the fairness points you raised, but from a sensibility standpoint, I like the idea. Corporate income tax is only 9% of total federal receipts, so it seems like we could make that up without incredibly burdensome changes. It would also make the US competitive again as a corporate domicile for multi-nationals (though without taxing them, it's not clear how advantageous that would be).
I do worry that it would raise other forms of exploitation of loopholes though. There would be less pressure to report payroll expenses (decreasing compliance and decreasing payroll taxes as anyone you pay off the books is cheaper out of pocket for you per dollar they receive) and I suspect we'd see a lot more people not taking large salaries at companies they control but rather funding their lifestyle needs with perks and loans from the company, the repayment of which would not be taxed.
Payroll taxes are 1/3 of federal receipts; any significant decrease in compliance there would perhaps be more damaging than losing the corporate tax income directly.
Yes, I think there is an enforcement and compliance problem. I think that gets into some serious details about a plan that would actually work. Perhaps extremely steep penalties for anyone caught cheating would be enough, but you are right that people would try to hide their revenue in the corporation. But aren't the extremely rich already doing that?
The entirety of economic entities is not conveniently split between "employees" and "businesses paying employees". Even aside from disabled, burnouts, unemployable, trust funders, criminals, barterers, and simple parasites, there exist sole proprietors, partners, and individual contractors, whose income never gets distributed to any employees.
Your hypothetical "fair system" will have to have policies and regulations in place to deal with all of these situations.
As far as I can see, the only opportunity for real fundamental simplification is to completely drop all taxes on income, and substitute consumption-based taxes. And even that is not as simple as it sounds (how does it deal with barter, for example?).
That would only be reasonable if you think that only poor and middle-income people should pay taxes. Everyone else would be able to opt out via a series of corporate shells.
In terms of businesses, I hold somewhat controversial belief that businesses should not be taxed. Their employees are taxed, and people recieving dividends are taxed. By not taxing businesses, we'd also balance out the unfairness in the system today, where large companies are able to offset all profits with deductions, and small companies which actually pay quite a bit. The point is to bring fairness to the tax system.