Some thoughts on the tax code

[frayne]

If I were king for a day I would do the following to revise the tax code, any thoughts ?

For starters:

Eliminate all refundable credits; the tax code should not be geared for social engineering and welfare. This means the elimination of the EITC (earned income credit), additional child tax credit, adoption credit, American Opportunity Education credit, to name a few.

Eliminate all schedule A deductions with the exception of state/sales/property taxes. This means the elimination of charitable contributions, mortgage interest, un-reimbursed business expenses and medical expenses for starters.

Have one tax form and a flat tax rate, graduated based on income. 10% on the first $100K, 20% for the second $100K and a max of 30% on the third $100K, with 30% being the max tax rate on all personal income over $300K.

Require all tax preparers to be licensed by the IRS.

Eliminate all tax refund loan schemes perpetrated by tax preparation businesses.

Eliminate short term and long term capital gains rates and tax gains at regular ordinary income tax rates. Eliminate the carry forward of losses.

Eliminate the taxation of social security benefits.

Keep schedules, B,C,D,E, F.

[W2R]

I'd throw the whole thing out and start over.

I'd tax a fixed percentage of everybody's income of every type. Say, 25% of everybody's income (or whatever percentage was decreed by law). No deductions, no credits, no withholding, no different types of income, no breaks for different categories of people, no nothing. No need to do taxes, either, because the fixed percentage would be siphoned off and sent to Uncle Sam as you receive the income. Tax evason would be a thing of the past since you would never see that 25% in the first place.

The IRS would become unnecessary with a system like this, and so would tax preparers, so this would never happen. One can dream.

[Spanky]

A flat-rate tax structure would put a lots of tax attorneys and accounts out of business. They would resist it at all cost.

While we are at it, simplifying all governmental regulations, policy and laws will make life easier for all of us.

[FIREd]

Quote:

Originally Posted by frayne Require all tax preparers to be licensed by the IRS.

Even better. Make the tax code so simple, nobody needs a tax preparer.

[LOL!]

I can't go for the OP's suggestion because my taxes would more than double.

Do I still get to exclude my 401(k) contributions?

If you put all those tax folks out of business, you would have to increase taxes to pay them for not working.

[VaCollector]

As a guy who use to make a really good living this time of year, I agree with W2R ~ the system is broken and it is WAY past time to fix it!

My 2 cents on just how to do that!??

Make it a requirement that all of our representatives in Congress and the Senate have to fill out their own tax returns and those of their
immediate relatives (Mother, Father, children) WITHOUT the benefit of any tax program, advisor or preparer! Their reference material is
limited to a copy of the tax code and their ONLY outside help is the toll free number to the IRS!!

I feel certain that something would change quickly!!

[traineeinvestor]

Quote:

Originally Posted by FD Even better. Make the tax code so simple, nobody needs a tax preparer.

+1

One of the things I am really looking forward to when I retire is losing my status as a US tax payer. My US tax return for a single year is longer than the income tax returns I have filed in 16 years in Hong Kong - and requires a professional accounting firm to prepare it. My Hong Kong income tax returns I can do myself in less than twenty minutes (half of which time is spent agreeing with mrs traineeinvestor which of us gets the home interst deduction). The property tax returns for the investment properties take a little longer - maybe half an hour each, of which laying my hands on the receipts and bank statements is the biggest part. No professional advice is needed.

[Free To Canoe]

Quote:

Originally Posted by frayne If I were king for a day I would do the following to revise the tax code, any thoughts ? Require all tax preparers to be licensed by the IRS. Eliminate all tax refund loan schemes perpetrated by tax preparation businesses. .

The IRS required all tax preparers to be registered this year. This involved a fee of about $60 and some change.

The IRS eliminated the "debt indicator" that caused many tax prep businesses to not be able to offer the instant refund type of loan.

I was wondering, as king of the world, how you would handle corporate taxation? Would the corporation still be treated as an individual? Would there be any tax changes for them?

I can't believe that you would want to take the govt out of the business of corporate and individual social engineering.

Free to canoe

[frayne]

Quote:

Originally Posted by FD Even better. Make the tax code so simple, nobody needs a tax preparer.

I agree 100% but realistically it ain't going to happen with all the lobbying groups representing tax lawyers, CPAs, EAs, etc. and not to mention tax prep firms.

[LightningDawg]

Quote:

Originally Posted by W2R I'd throw the whole thing out and start over. I'd tax a fixed percentage of everybody's income of every type. Say, 25% of everybody's income (or whatever percentage was decreed by law). No deductions, no credits, no withholding, no different types of income, no breaks for different categories of people, no nothing. No need to do taxes, either, because the fixed percentage would be siphoned off and sent to Uncle Sam as you receive the income. Tax evason would be a thing of the past since you would never see that 25% in the first place. The IRS would become unnecessary with a system like this, and so would tax preparers, so this would never happen. One can dream.

+1000

[scrabbler1]

Quote:

Originally Posted by frayne If I were king for a day I would do the following to revise the tax code, any thoughts ? For starters: Eliminate all refundable credits; the tax code should not be geared for social engineering and welfare. This means the elimination of the EITC (earned income credit), additional child tax credit, adoption credit, American Opportunity Education credit, to name a few. Eliminate all schedule A deductions with the exception of state/sales/property taxes. This means the elimination of charitable contributions, mortgage interest, un-reimbursed business expenses and medical expenses for starters. Have one tax form and a flat tax rate, graduated based on income. 10% on the first $100K, 20% for the second $100K and a max of 30% on the third $100K, with 30% being the max tax rate on all personal income over $300K. Require all tax preparers to be licensed by the IRS. Eliminate all tax refund loan schemes perpetrated by tax preparation businesses. Eliminate short term and long term capital gains rates and tax gains at regular ordinary income tax rates. Eliminate the carry forward of losses. Eliminate the taxation of social security benefits. Keep schedules, B,C,D,E, F.

I agree with a lot but not everything here.

Elimination of refundable credits - I agree, especially with those relating to children. Childfree people like me should not subsidize the lifestyle choice of those who have kids.

Schedule A deductions - I would keep the state/local/property tax deduction but also keep the medical expense one, too. However, I would make health insurance fully deductible the way it is for those in group plans via payroll deduction.

Then convert Schedule A deductions to a credit based on its net worth equal to those in the lowest marginal tax bracket. Same for the Standard Deduction which more taxpayers will be able to use once most of Schedule A's deductions disappear (and enable more taxpayers to use the short forms).

Convert retirement plan contributions such as IRA and 401(k) to a credit the same way Schedule A deductions are converted.

Return the tax rates on ordinary income to what they were under Clinton. Tax all dividends except for muni bonds as ordinary income. Same for pensions, SS benefits, and TIRA withdrawals.

For cap gains, I would institute a mild (and capped) indexing procedure to adjust the cost basis for inflation. If there is still a profit on an indexed basis, then tax the indexed gain as ordinary income. If there is a nominal loss, then do not index. If there is a nominal gain and indexed loss, then assign zero loss/gain and zero taxes owed on it.

Change the method of local school funding to include a credit for those who have no children. The childfree should pay less (not zero) in local school taxes because they have no kids in the schools.

It's a start....

[smjsl]

Quote:

Originally Posted by W2R I'd throw the whole thing out and start over. I'd tax a fixed percentage of everybody's income of every type. Say, 25% of everybody's income (or whatever percentage was decreed by law). No deductions, no credits, no withholding, no different types of income, no breaks for different categories of people, no nothing. No need to do taxes, either, because the fixed percentage would be siphoned off and sent to Uncle Sam as you receive the income. Tax evason would be a thing of the past since you would never see that 25% in the first place. The IRS would become unnecessary with a system like this, and so would tax preparers, so this would never happen. One can dream.

Quote:

Originally Posted by LightningDawg +1000

+2000

(and btw, such a system has been a reality, not a dream, in some places)

[LOL!]

Quote:

Originally Posted by scrabbler1 I agree with a lot but not everything here. Elimination of refundable credits - I agree, especially with those relating to children. Childfree people like me should not subsidize the lifestyle choice of those who have kids. ... Change the method of local school funding to include a credit for those who have no children. The childfree should pay less (not zero) in local school taxes because they have no kids in the schools. It's a start....

I think if you don't produce your own children to provide services in the future for you, then you should pay extra taxes. Or you have to take a vow to never have anyone 18 years younger than you provide any product or service for you. That would mean that when you hit 60 you could not receive anything from anyone under age 42. I would think that would make your life virtually impossible.

Or will you claim you do not benefit at all from other people's children?

[sheehs1]

For those that do not itemize taxes should be relatively easy to do. I wonder what percentage of taxpayers actually use a tax preparer.?

A search for this gave me this tidbit from a 2000 government report:

" tax year 2000,over half of the 130 million individual filers paid someone to prepare their tax return." ...which means close to half don't use a preparer. It also means only 39% (give or take) of the US population filed taxes.

I'm certain there are more current numbers somewhere...but it's late and I'm going nite nite.

Disclaimer: My husband is a CPA.

[scrabbler1]

Quote:

Originally Posted by LOL! I think if you don't produce your own children to provide services in the future for you, then you should pay extra taxes. Or you have to take a vow to never have anyone 18 years younger than you provide any product or service for you. That would mean that when you hit 60 you could not receive anything from anyone under age 42. I would think that would make your life virtually impossible. Or will you claim you do not benefit at all from other people's children?

This is baloney. I will be paying the salaries of other people's children every time I buy a good or service they were part of producing. I will be paying taxes to run state-operated orphanages. I will be paying taxes to imprison children who were raised badly by their parents, after I paid school taxes to educate them badly and taxes to provide their parents tax breaks. Some of my taxes will provide welfare benefits to households which include children, often born out of wedlock and who are not being provided for financially by their fathers. If I am the victim of a crime committed by a teenager who was raised badly his or her parents, can I recover any economic damages as a result of the bad parenting?

When the cost of dealing with our trash rises because there is so much more of caused by all the extra children, will they pay to offset the environmental damage?

We childfree are far less costly to society and should pay less in taxes to reflect this. Instead, we pay more. If I were king for a day, I would right this terrible injustice inflicted on the childfree.

[ERD50]

Quote:

Originally Posted by VaCollector Make it a requirement that all of our representatives in Congress and the Senate have to fill out their own tax returns and those of their immediate relatives (Mother, Father, children) WITHOUT the benefit of any tax program, advisor or preparer! Their reference material is limited to a copy of the tax code and their ONLY outside help is the toll free number to the IRS!! I feel certain that something would change quickly!!

+1

Then, each should be audited and mistakes made public with some sort of penalty.

-ERD50

[Trawler]

Quote:

Originally Posted by frayne If I were king for a day I would do the following to revise the tax code, any thoughts ? For starters: Eliminate all refundable credits; the tax code should not be geared for social engineering and welfare. This means the elimination of the EITC (earned income credit), additional child tax credit, adoption credit, American Opportunity Education credit, to name a few. Eliminate all schedule A deductions with the exception of state/sales/property taxes. This means the elimination of charitable contributions, mortgage interest, un-reimbursed business expenses and medical expenses for starters. Have one tax form and a flat tax rate, graduated based on income. 10% on the first $100K, 20% for the second $100K and a max of 30% on the third $100K, with 30% being the max tax rate on all personal income over $300K. Require all tax preparers to be licensed by the IRS. Eliminate all tax refund loan schemes perpetrated by tax preparation businesses. Eliminate short term and long term capital gains rates and tax gains at regular ordinary income tax rates. Eliminate the carry forward of losses. Eliminate the taxation of social security benefits. Keep schedules, B,C,D,E, F.

My two cents would be eliminate income tax all together and use a consumption or sales tax thus the more you spend the more you pay.
All the tax dodgers and illegal incomers then would have to pay tax.

[LightningDawg]

Quote:

Originally Posted by Trawler My two cents would be eliminate income tax all together and use a consumption or sales tax thus the more you spend the more you pay. All the tax dodgers and illegal incomers then would have to pay tax.

This is the best plan of them all. EVERYBODY would pay instead of just 53% (47% do not pay any income tax in US).

[missionfinder]

What makes anyone think a simplified or flat income tax won't simply end up in another 10-20 years as complex (or more) than it is now. The tax code was greatly simplified under Reagan and look what's happened since. So long as we have an income tax the power is in the hands of the politicians and they will be subject to manipulation by special interests. Already, its evidenced in this there with debates about what should and should not be deductible.

Fairtax.org ! A fair consumption tax.

[scrabbler1]

The fairtax would be awful for the middle class.

FactCheck.org: Unspinning the FairTax

Thankfully, this proposal will never get anywhere.