After the hectic filing season, many of people naturally turn their thoughts to how to make the whole tax process a little more sane and logical. To that end Bill Bischoff at Smart Money has come up with The 5 Best Tax Changes We Won't See. In short, he'd like to see the laws changed so that:
- Social Security benefits aren't taxed twice,
- Refundable Tax Credits are eliminated to prevent fraud,
- Phaseouts are eliminated to increase the clarity of the tax code,
- Alternative minimum tax rules are repealed,
- Health insurance premiums are tax-deductible in full for all employees.
What would you add to a wish list for tax reform? Leave a comment and let us know.
(Found via the Wandering Tax Pro.)
Overall, I think Congress has spent too much political capital on the “supply side” and not enough on the “demand side” regarding tax reform and its effects on stimulating the economy. In other words, too much effort and money is being spent on helping business and nothing for tax payers. And no, lowering taxes is not the answer. Tax incentives for investing is the answer. Get money into the markets that is still out there!
So, my first idea-raise the passive loss limits to $250k of income. This would allow moderate to above moderate earners incentive to buy rental real estate in high value markets, like California and the northeast corridor. Right now, the write off of losses ends between $100k-$150k of earnings. Raise the limit and housing stock sitting idle will be purchased fairly rapidly. And this doesn’t require tweaking tax rates, which makes Capital Hill nuts!
My second idea is to raise Roth IRA contribution limits to $15k. This pumps money into the stock market provides cash liquidity to the bond markets.
Raise the schedule A filter on income to $250k. Again, another incentive for moderate earners in high priced markets to buy real estate without the fear of losing the deductions.
And, of course, fix AMT! This tax is incredibly unfair to people who live in high cost-of-living areas. Either index it for cost of living or get rid of it.
Great ideas, David. You have my vote for your ideas. I particularly like the idea of raising the contribution amount for IRAs. In my opinion, these should be equal to the 401k amounts, so that people who don’t have a 401k can still save the same amount inside an IRA. And there’s another investment idea too. Canada this year started a tax-free savings account. Contributions are non-deductible, and earnings are tax-free. Withdrawals can be made at any time for any reason. We could implement something similar here in the US … and it would protect a lot more people than 401ks or IRAs with their severe early distribution penalties.
TO: Anybody. T—1—Page 1 of 2
FROM: Frank Skipton, CPA–retired The contents of this
2150 Laura St. # 13 document is hereby
Springfield, OR. 97477 irrevocable transferred to
frankskip9@yahoo.com the public domain.
RE: Taxes, Taxes, Taxes.
Taxes are the foundation of every government.
Without a decent taxing system the bureaucrats turn into criminals.
When it comes to taxes everyone is an expert. So here’s my two-bits worth.
The most important part of any tax is CREDITABLITY.
Creditable to the rich, the poor and everyone in between. If not creditable the system will eventually fail—and the reason is simple—the people pay all taxes.
A little history.
When I worked for the Inspector of the IRS (Internal Audit) during the early 60s I had access to all file and all areas. During this time federal income tax rates were 91% on all taxable income over $ 200,000.00. It was a really strange feeling to see the tax returns of the so called entertainment celebrities with income over a million dollars and actually see the government was taking 91% of all their income over 200K. Even as a bureaucrat I felt their pain.
Everyone in the IRS knew when people got into a tax bracket over 50% they would become criminals–tax cheats. No one is going to “voluntarily” give the government more of their income than they get to spend.
After I left the IRS I went into public accounting. There I saw the attitude and conduct of the people who where working their butt off to earn the money that the government was spending. (It’s always more fun to spend somebody else’s money.) These people had a lot of choices–giving the government more than they got to spend was not one of them.
Criminal conduct–tax cheats–was common. Tax avoidance–which is legal–was much more common. Attorneys and CPAs were the biggest cheats–they argued it was really only avoidance–and the dean of the law school I attended maintained it depends on the facts and circumstances–I disagree.
But a more interesting attitude and conduct that was perfectly legal were my clients that simply stopped working when their tax bracket hit 40-50 percent. (A few stopped working when they hit the 34% bracket.) This was common among medical doctors and other personal service occupations. And occasionally some in the construction industry. Or they would view all taxes as a cost of doing business and raise prices so the people pay all taxes—which is what is done today.
Why kill yourself for a government that only wants to go to war. (Vietnam)
Caveat–This legal option is always available to the private sector–as a CPA I can tell you it is extremely easy to eliminate or control all profits–so you pay no taxes or very little taxes.
To earn a lot of money and pay a lot of taxes you need a reason–MOTIVATION.
T—1—Page 2 of 2
But enough history–the following is the taxing system I have been advocating for many years.
To be creditable a taxing system needs to have certain characteristic.
1. Simple. Complexity only makes the attorneys and CPAs rich, employs lots of bureaucrats and accomplished absolutely nothing else.
2. Extremely low rates. High rates breed criminals and hatred among and between the classes.
3. Objectivity. Everyone and everything should be taxed–NO EXCEPTIONS. Exceptions only create jealously, envious, resentful of those who have the exception, suspicion and hatred.
To accomplish the above I propose the following:
• Transfer the power to tax to a non-governmental entity. Get politics and every other influence out of the revenue raising function. The power to tax should only be used to raise the revenue governments need–and nothing else.
• Establish a SINGLE tax system for the entire United States–no cities, counties or states would be allowed to have any power to tax–only the federal government. The states would be allowed to “piggyback” on any part of the taxing system. (Some states already piggyback.) The federal government would collect and remit.
• There would be thousands of different kinds of taxes–all very–very low. Absolutely everything and anything would be taxed. All income, all activities, all property (tangible and intangible) Washington state has a business and occupation tax which is an example of what I am referring to. Their rates are too high but they are on the right tract. If you want to do business in Washington you must register–which is cheap and easy. Most activities are taxed–not taxable income. They just need to expand the coverage and reduce the rates.
• There would be no exemption–to anybody–for any reason. If elected officials believed it to be good public policy not to burden some with taxes–the elected officials could write a check to reimburse for taxes actually paid.
• Administration would be simple and fully automated. Employers, employees and everybody else would not be burdened with anything complicated. Payment to the government would be automatic–as part of the computer program. When any activity happens the tax would be computed and remitted immediately.
• Enforcement and penalties would be vicious–no exceptions. Disputes would be settled by a committee without lawyers, CPAs or bureaucrats. All property—real and personal would have a highly visible sticker similar to the vehicle license plates.
Is the above possible–HELL NO. The career politicians will never give up the power. And the attorneys, CPAs and bureaucrats would fight like hell to stop this.
The U.S. progressive income tax is beyond piecemeal repair.
Fundamental tax reform is the only way to go.