Since the ratification of the 16th amendment and the introduction of the income tax in 1913, the nation suffers a collective heartburn each year on April 15, accompanied by no small amount of whining, moaning and flavoring the air with multilingual profanity.
While engaging in the onerous task of tax preparation we are all aware that many, if not most, of the wealthiest citizens of this country will be shirking their fair share of the tax burden, which makes the task even more onerous.
In short, the current tax code sucks.
... continued
Over the years there have been flat income tax proposals which are usually proposed by a legislator of the Libertarian wing of the Republican Party (or a clueless sock puppet for some special interest). I have generally passed them off (correctly, IMHO) as a smoke and mirrors act to pass the tax burden down the economic ladder and protect the gold of those in the rarefied levels of wealth and privilege.
The Fair Flat Tax Act Of 2007 proposal(PDF) is the," Hmmmm .... Maybe", part of the title.
Comparing it with the current tax code we endure (with the caveat that I am a far cry from a tax accountant) as to its overall effectiveness and from where the bulk of the tax revenue comes. Under the existing code the bulk of it seems to come from the legions of middle class Jane & John Q. Public.
The question is, does this particular flat tax proposal actually distribute the tax burden in a more equitable manner across the whole economic spectrum, or is it just an improved smoke and mirror routine?
The main headings of the 6 principles behind the flat tax proposal are:
PROVIDE REAL RELIEF TO MIDDLE-CLASS TAXPAYERS
SIMPLIFY THE TAX SYSTEM
ELIMINATE BREAKS AND CLOSE TAX LOOPHOLES
TREAT WORK AND WEALTH EQUALLY IN THE TAX CODE
PROVIDE RELIEF EVEN ON STATE AND LOCAL TAXES
ENCOURAGE SAVINGS AND INVESTMENT
It's difficult to argue with those goals - but then it was difficult to argue with the goals of No Child Left Behind, the results yes, but not the goals.
The tax brackets are greatly simplified into 3 income brackets, with strict limitations of deductible items, allowances for state property and sales taxes will be deductible and a simplified tax form. (PDF) will be used.
If taxable income is: tax bracket is:
------------------------------------------------
Single Returns
$ 0 - $15,000 ............................15%
$15,001 - $60,000....................25%
Above $60,000.........................35%
Married filing separately
$0 - $15,000 ............................15%*
$15,001-$60,000......................25%
Above $60,000 .........................35%
Married filing jointly
$0-$30,000 ..............................15%*
$30,001-$120,000 ....................25%
Above $120,000 ........................35%
Head of Household
$0 - $16,000 ..............................15%*
$16,000 - $105,000 ...................25%
Above $105,000 .........................35%
IMO, there should be a 4th bracket of 40% for those incomes exceeding $200,000 for an individual or $250,000 for joint returns.
The current tax code allows a plethora of deductibles from the personal and corporate income which can be used to the tax payer’s advantage. There in lies the problem. The current tax code consists of volumes of unintelligible double speak that has more holes in it than a wheel of well aged Swiss.
For the vast majority of payroll workers there are few escape holes available to ease the burden, because the IRS knows about nearly every dime you earned and already HAS your money; consequently, you must prove to the IRS that you overpaid your taxes – short of doing that – they will probably dig even deeper into your pocket.
OTOH, those with enormous annual incomes derived from multiple sources can afford to hire the expertise of the best (or worst considering one’s perspective) accountants and lawyers to navigate the holes and cut their client’s taxable income to near zero.
If, however, the holes are eliminated then the taxes paid will actually come closer to what’s legitametly owed and the tax burden will be spread in a more equitable fashion across the entire economic spectrum. I would further expect that capital gains and inheritance would be treated in the same matter as all other income ( as stated in the 4th principle).
The list below shows the expenses that will be excluded as deductions and those that will be added as deductions. This applies to individual taxes only.
* Exclusion of income earned abroad by U.S. citizens
* Exclusion of certain allowances for Federal employees abroad
* Exclusion of employee meals and lodging
* Exclusion of benefits under cafeteria plans
* Exclusion of miscellaneous fringe benefits
* Exclusion of employee awards
* Exclusion of income earned by voluntary employees beneficiary associations
* Exclusion of workers compensation benefits
* Exclusion of special benefits for disabled coal miners
* Exclusion of premiums on group term life insurance, accident and disability insurance
* Deferral of interest on savings bonds
* Deduction for state and local taxes – replaced by state and local income, property and sales tax credit
* Choice of basis valuation for capital gains replaced by first-in, first-out rules
* Provision that give tax preferences to expatriates
A different set of exclusions are posited for corporate taxes. There will be a good deal of hair pulling and gnashing of teeth when one considers the fact that 65% of US corporations pay NO taxes – zippo - nada, despite their whining that US corporate tax is to high compared to the rest of the industrial nations. What is not recognized is that in those countries in which the tax is lower they might actually collect the taxes due from more than 35% of their corporations.
* Inventory property sales source rule exception (currently, US companies with excess tax credits use them to cut US taxes by shifting US income abroad)
* Deferral of Active Income for controlled foreign corporations (currently, foreign subsidiaries of US firms delay US tax liability by investing in low tax places)
* Reduced rates on first $10 million of corporate taxable income (currently, companies pay lower taxes on initial income instead of an overall flat rate)
* Deferral of Active Financing Income (currently, serves as incentive for US companies to invest in low tax foreign countries)
* Deferral of gain on non-dealer installment sales (currently, law allows prorating of profit from sales over several years rather than in one year)
* Special tax rate for nuclear decommissioning reserve fund (currently, companies can create reserve fund to pay decommissioning costs; that reserve fund is taxed at 20 percent instead of 35%)
* Exception from net operating loss limitations for corporations in bankruptcy proceeding (currently, corporations acquiring others are
exempted from certain limits on carrying losses forward 15 years)
* Excess of percentage over cost depletion for fuels (currently, companies can deduct more than their original capital investment)
* Deferral of gain from disposition of electric transmission property to implement FERC policy (currently, cost to government occurs in one year; instead of repeal, this bill will spread the cost over eight years instead) * Expensing of energy exploration and development costs (currently, the law allows expensing rather than depreciation and eliminates corporate Alternative Minimum Tax on drilling costs)
* Completed contract rules (currently, contractors can mismatch income and expense reporting to create a deferral of tax)
* Tax credit for enhanced oil recovery costs (currently gives credit for new methods)
* Depreciation of equipment in excess of alternative depreciation
* Lower of cost or market valuation method for inventory
* Deduction for punitive damages
Source: Joint Committee on Taxation
As I have never had to submit more than a standard 1040 with deductions and a rental income earnings form, I can’t speak to many of the personal income proposals and I know diddly squat about corporate taxes.
There are, no doubt, some problems with this proposed tax plan; however, if it results in a more equitable share of the tax burden distributed across the economic range, it would be a hell of a lot better than the "screw the middle class" tax code that we labor under.
But is it, in fact, better than what we have or is it just another, baffle us with bullshit and dig deeper into our pockets, bottle of snake oil(or whatever string of mixed metaphors that suits your fancy)?
Hopefully, there are Kossacks here in the lair of the oramge satan that can lend a more knowledgeable perspective on this proposal than I can.
There has to be a better tax plan than the "Nightmare on April 15th St." that currently plagues the populus.