This is a great baselinescenario blog about why relatively small increases in taxes make a big difference: http://baselinescenario.com/2011/10/11/bathtubs-for-beginners/?utm_sourc....
We should let the Bush (and now Obama) tax cuts expire, and enact fundamental changes in the tax code to enhance fairness.
I believe in progressive taxation, for several reasons. First, because as Elizabeth Warren pointed out, those who have more have benefitted more; second, because the effect on those with more at a higher rate is less than the effect on those with less – someone making minimum wage at 5% is much more affected than someone making $1M paying 35%; third, progressive taxation is good for the economy. There are some studies that show a correlation between the highest growth rates in the economy over a number of years, and a highest marginal rate in the range of 50-55%. Everyone should pay some taxes, however.
The internal revenue code should be simplified and made neutral regarding choices of economic activity. Income derived from capital and labor should be treated identically. Both are essential, and it is a myth that investment won't take place without the incentives. It will just be more careful investment based on economic reality instead of skewed by taxation. I would abolish the capital gains rate, and subject all income to taxation at the same rate.
All deductions and credits should be eliminated, and substantially reduced rates applied to gross income. Corporations doing business in the United States should be taxed identically to individuals, with the taxed income being the portion of the gross income of the corporation worldwide determined by the receipts in the U.S. divided by worldwide receipts.
Taxes should pay for expenses enacted. A constitutionall amendment should be proposed providing that tax rates be coupled with expenditures, so taxes are automatically adjusted to provide sufficient revenue to provide funding for amounts spent, plus an amount sufficient to amortize the cumulative national debt over a 20 year period, except in times of declared war or national emergency declared by two-thirds vote of Congress with the concurrence of the President.