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]

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]

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]

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]

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]

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]

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]

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

+2000

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

 

[LOL!]

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]

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]

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]

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]

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.

 

[photoguy]

One of the big drawback of fair tax proposal (besides being regressive) is the massive amount of cheating that will occur. With income tax, the money is removed by the employer and sent to the government before you even get paid. With a sales tax type proposal there will be enormous incentive to cheat the system (e.g., use all cash transactions, etc.).

 

[sheehs1]

+1....Good point phoyoguy for those paid with W2's, K1's ..1099's...etc. It is impossible to track those that offer services for cash and are paid in cash with the system we have much less another system that encourages cheating even more. I can see a black market...arising out of a change such as this. Many black markets.
You may have hit the nail on the head as the primary reason there will always be an IRS audit threat and there will always be tax preparers. In some form they keep some level of honesty in the system. Just a thought.

 

[missionfinder]

One of the big drawback of fair tax proposal (besides being regressive).

How is it regressive? People who make more have more disposable income, they buy more and pay more towards the Fair Tax as a result. The poor will pay no tax, since they get a prebate check every month.

is the massive amount of cheating that will occur. With income tax, the money is removed by the employer and sent to the government before you even get paid. With a sales tax type proposal there will be enormous incentive to cheat the system (e.g., use all cash transactions, etc.).

What basis do you have for this assumption? Millions of businesses currently collect sales tax and there is no wide-spread cheating. The Fair Tax is simply another sales tax they would collect. Dishonest businesses, it doesn't matter what system is in place they will cheat. Honest businesses do not. Under the current system I can't tell you how many times I've had a contractor ask for cash instead of a check and they give me a nod and a wink. I write a check!

Furthermore, it will tax far more of the "underground" economy than the current system. Drug dealers, the mob, etc. do not pay taxes on their ill gotten gains. But, under the new system they will pay taxes every time they buy a home, car, phone, DVD, stereo, groceries, etc.

 

[Texas Proud]

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 read what you wrote, but want to clairify.....

Do you mean to get rid of all refundable credits altogether, or just the refundable part (I think you mean all of them... in no more)...

Why stop at refundable credits... get rid of most credits... I would probably keep the foreign tax paid credit since it is a two way street and having two governments taxing people is just to much...

Have all tax preparers licensed by the IRS... to what end Isn't this a restraint of trade I did have to take a look at the program that someone else mentioned... but it does seem

Eliminate tax refund loan schemes.... seems a bit harsh... and I am not sure they can even do that... sure, you can have it where the IRS does not send the money to the preparer, but I do not see how you can stop them from getting a loan... heck, we have payday loan stores that charge more...

I can get behind most of the rest you put down... (heck, I can get behind the ones above, just don't see how they do anything of substance)... just will not happen....

 

[Midpack]

This will go nowhere but FWIW...


I can live with several of the proposals, but if we stay with a progressive structure for example, I'd:

1. Have the gubmint revise all the existing rates by X%. For example if the marginal rates are 10%, 15%, 25%, 28%, 33% & 35% and our overall revenue shortfall is 30% - the new published rates would be 13%, 19½%, 32½%, 42.9% & 45.5%.
2. Give Congress 1 (or X) years to reduce spending to reduce or eliminate the need to increase marginal rates. I would think the public might get a little more interested in "encouraging" their Congressional reps to make specific cuts - instead of leaving it to special interests and pork. To the extent the cuts are made, the "new" rates could be reduced or eliminated.
3. If unsuccessful, enact the new published rates in 1 or X) years.
4. Sometime (hopefully) before the economy is destroyed by the tax increases, I'd think the public, and therefore Congress, might really get serious about this can we're all kicking down the street.

Please don't correct my math, it's to illustrate an approach.

I wonder if people really know how unsustainable our deficits are? That answer is most don't have a clue. It might help if they could actually see what it would cost to close the deficit right now. Maybe we'd get involved in politics instead of watching DWTS reruns...