My idea, in a nutshell, is replace the income tax with the progressive consumption tax known as the X tax, and replace the payroll tax with a carbon tax. Call it the X+C plan.
Subsequent discussion at David Frum's blog underscored some of the difficulties of achieving this politically. Many commenters there were wary of the X tax as a potential windfall for the rich (though it's designed to maintain the progressivity of the income tax) and moreover the idea of an X tax is hard to understand and explain (and on that I say mea culpa, as I have had difficulty explaining it and find some of the technicalities hard going myself).
It may be that another, more comprehensible, form of progressive consumption tax would be more politically viable, but it still seems to me that the general direction I sketched out is a good one. Of course, it would need to be championed by a politician who can explain these matters well, and there aren't many of those around.