We need real tax reform and we need it now. Previous attempts have been made at tax reform, but they have only provided band-aid solutions that have still left us with too many quirks, complication, and read tape. There are several things Congress could do to simply the tax system and benefit the taxpayers and federal budget at the same time.
First, I would institute a simple two-tiered tax on earnings and passive income (interest, dividends, capital gains, etc.) that are not in a tax-sheltered account. They would be treated equally and no distinction would be made between long-term and short-term capital gains. Individuals (whether married or not) who have taxable earnings and passive income of less than $30,000 would pay no federal taxes. Amounts equal to or greater than $30,000 but less than $200,000 would be taxed at 25%. Amounts equal to or greater than $200,000 would be taxed at 30%.
Second, I would get rid of the quarterly estimated tax requirements and associated penalties for everyone except those who are habitually late (after April 15) filing their return and/or paying their taxes. Few things in our tax system are more complicated than trying to figure whether or not you paid enough estimated taxes, whether they were paid on time, and/or the penalty for not doing so. Even the IRS acknowledges how complicated it is to figure out this penalty, as they offer to calculate it for you.
Third, I would eliminate the annual limits on capital losses as well as those special "wash sale" rules, which further restrict the writing off of capital losses. The reporting of capital gains has never been limited and neither should capital losses. "Wash sale" rules restrict the writing off of capital losses for stocks and mutual funds sold at loss but bought back again within 30 days. As I mentioned in a previous writing, these rules can get very complicated, with those for figuring the estimated tax penalty being the only ones that are more difficult to understand.
Fourth, I would keep personal exemptions and child tax credits intact but eliminate all deductions except for charitable contributions and mortgage interest on one's primary dwelling. There would be no standard deduction or Earned Income Tax Credit.
Fifth, I would eliminate the Alternative Minimum Tax (AMT). This is probably the third most complicated item in the tax law. It was designed to make sure the rich pay at least some taxes, but the elimination of most deductions would accomplish this goal now by taking away most of their shelters.
Sixth, I would make some adjustments to inheritance and gift taxes. For the most part, they would not be treated any differently than ordinary income. However, there would be some exceptions. Inheritances and gifts passed from one spouse to another would be exempt from federal taxes. Inheritances of family farms and other legitimate businesses by any family member from another would not be taxable.
These changes would benefit individuals by making the tax system less complicated for everyone and taking a smaller percentage of income from most taxpayers (especially the middle class). The government would benefit from collecting more taxes because more people would be working and receiving higher incomes (as this system would encourage more investment in infrastructure). Also, more people would be encouraged to make more taxable passive income. The current system discourages taxable passive income. In addition, the extremely wealthy would have fewer options for sheltering their income.
Terry Mitchell is a software engineer, freelance writer, and trivia buff from Hopewell, VA. He also serves as a political columnist for American Daily and operates his own website - http://www.commenterry.com - on which he posts commentaries on various subjects such as politics, technology, religion, health and well-being, personal finance, and sports. His commentaries offer a unique point of view that is not often found in mainstream media.
"Settle for Pennies on the Dollar! IRS debts settled for... Read More
Does this scene sound familiar? It's April 7. You haven't... Read More
Six Urban Myths ? Taxation"I am proud to be paying... Read More
If you have recently started an Internet or home business,... Read More
"What we've got here is a failure to communicate." ... Read More
It's a major fear for most Americans: A notice from... Read More
How about a Tax Tip?As we all know Taxes are... Read More
While there are many equally valid reasons to incorporate, saving... Read More
Small Businesses Filing Amended Federal Tax Returns to... Read More
Beware of advertisements that claim to settle tax debts for... Read More
With gas prices at an all time high before Hurricane... Read More
Do you realize that some tax forms ask you to... Read More
Strategic planning throughout the year results in a minimal tax... Read More
Tilting the Tax Laws in Your Favor.In order to accelerate... Read More
In the rush to get tax returns prepared and filed... Read More
Media reporting of a new EU savings tax directive has... Read More
Are you in the middle of a disagreement with the... Read More
Yes, the tax season is upon with the first filing... Read More
One way to maximize your business profits is by reducing... Read More
Does your incorporated business pay alternative minimum tax ["AMT]? If... Read More
So, you were pleasantly surprised to learn that you are... Read More
In the largest criminal tax case ever filed, KMPG has... Read More
The knock on the door from a Tax Inspector is... Read More
Deducting Your Auto ExpensesAuto deductions are a very complex topic.... Read More
To tax or not to tax - this question could... Read More
Employers often ask employees to designate the amount of tax... Read More
In trying to comply with tax laws for your e-business,... Read More
The IRS has obtained civil injunctions against more than 100... Read More
"Depreciation." For business owners, this word is the one most... Read More
1812The first attempt to impose an income tax on America... Read More
One can never underestimate the enthusiasm that politicians have for... Read More
The United States is a nation of entrepreneurs. There are... Read More
Often people fall on hard times and stop paying on... Read More
For many business owners the answer to this quandary is... Read More
Often people fall on hard times and stop paying on... Read More
Six Urban Myths ? Taxation"I am proud to be paying... Read More
Recently, I stumbled across a concept that could change your... Read More
The Internal Revenue Service has certified the 2006 Toyota Highlander... Read More
To tax or not to tax - this question could... Read More
With gas prices at an all time high before Hurricane... Read More
Tilting the Tax Laws in Your Favor.In order to accelerate... Read More
Running a home based business reaps many wonderful tax deductions... Read More
Why a Corporation Helps Save You TaxesThe Tax Rates (Notice... Read More
Marketing is a necessary expense in running practically any business... Read More
Over 50% of marriages end in divorce in the United... Read More
Let's assume that you would like to begin saving for... Read More
As a small business owner or self-employed person, one of... Read More
1812The first attempt to impose an income tax on America... Read More
Anyone who is closely related to an accountant knows that... Read More
The federal tax code is complex. This complexity generally arises... Read More
According to the IRS, taxpayers underpay their taxes by some... Read More
If your business has employees, you must pay employment taxes.... Read More
Knock-Knock-KnockWho's there?The IRS!The next quarterly payment of estimated income tax... Read More
The Internal Revenue Service is reporting that the difference between... Read More
As a gentleman was leaving my class recently, he wanted... Read More
As tax time approaches, many home-based business owners begin completing... Read More
If you have employees, you are responsible for paying a... Read More
Managing a business small, medium or big requires you to... Read More
In trying to comply with tax laws for your e-business,... Read More
It's a major fear for most Americans: A notice from... Read More
At the present time a company incorporated in the Isle... Read More
"Deducting Meals and Entertainment"O.K. You've been working really hard on... Read More
NOTE: This is the first in a series of 5... Read More
As everyone in the U.S. knows, we have just passed... Read More
Assume a buyer in Pakistan downloads software from the Internet... Read More
If you paid someone to care for a child so... Read More
Tax |