1. Don’t punish achievement and risk . A new tax code should minimize the impact of taxation on risk and achievement. A progressive tax rate, especially a progressive tax rate combined with double–taxation of saving and investment, discourages investment and innovation, and thereby decreases capital formation. High tax rates also discourage workers from more challenging work and longer hours because they keep less of what they make.

2. The tax code should not play favorites . The current tax code is unfair. It rewards and punishes taxpayers based on a variety of arbitrary factors, including marital status, family size, source of income, use of income, and saving habits. Reform should eliminate the many credits that now exist to reward certain behavior, such as purchasing an SUV or an electric car.

3. Tax reform means lowering tax rates and broadening the tax base so that all income is taxed one time . Some Americans should not pay less in taxes simply because they choose to spend money on articles that the government subsidizes through tax preferences. Across the economy, lower tax rates encourage work and investment.

4. The tax code should be understandable . The current tax code is needlessly complex, and this hurts economic growth. Americans spend over six billion hours filing their tax returns every year. As if one tax return wasn’t enough, more and more taxpayers are having to fill out two or more returns each year.

5. Tax reform should simplify the tax code. Almost $200 billion would be saved each year if Americans could do their own taxes instead of paying fees to tax accountants or buying tax software. The president’s call to “simplify the federal tax code” should come as welcome news to taxpayers, who may well be confused by the over 1,100 different forms and publications that comprise the current tax code.

6. Tax rates should be low so as to encourage economic growth . President Bush made a good start with his 2001 and 2003 tax reforms and is right to push Congress to make these tax cuts permanent. The president should continue to focus on tax rate reduction and elimination of double taxation on dividends and capital gains. Lower taxes help Americans achieve a better standard of living through economic growth.

The president should also look at reforming corporate taxation. American companies pay one of the highest corporate tax rates in the world, and this punitive rate is even imposed on income that is earned — and already subject to taxation — in other countries. Lowering the corporate tax rate will help American businesses create jobs and boost productivity.

President Bush’s words on fundamental tax reform were a good first step. They addressed the issues of simplicity, fairness, and economic growth. Now the president must take the next step and propose an overhaul of the current tax system.

Rea S. Hederman is senior policy analyst in the Center for Data Analysis, and Daniel J. Mitchell is McKenna Senior Fellow in Political Economy,

at The Heritage Foundation.