Tax Reform, My Way
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.
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MORE RESOURCES:
 KOMO News | Wash. lawmakers: Tax compromise could be possible BusinessWeek Legislative leaders were more optimistic Thursday that compromise might be possible on an $800 million tax package to help bridge ... Lawmakers back, still stuck on taxes Republican lawmakers frustrated at slow pace of special session |
Tax officials find bonanza of offshore income Globe and Mail 19, 2010 9:50AM EDT Crunch time for tax filers is still weeks away, but Canada Revenue Agency can already boast that it has unearthed six times more ... This could be the year for a nice, big refund from Ottawa |
Credit Suisse clients, staff face German tax probe Reuters DUESSELDORF, Germany, March 19 (Reuters) - German prosecutors have launched 1100 tax evasion probes against clients of Swiss bank Credit Suisse (CSGN. ... |
 Global Toronto | 4.5% property tax hike proposed for Regina CBC.ca (CBC) The City of Regina portion of property taxes could go up 4.5 per cent, a budget proposal released Friday says. That's the amount the city says it ... Regina residents facing biggest tax hike since Mayor Pat Fiacco took office |
Mayors fear province will create new tax for TransLink Globe and Mail Mr. Trasolini said provincial representatives have been saying for years that they believed the region could put more into transit costs from property taxes ... Bond, mayors head talk TransLink |
 The Guardian (blog) | Mandelson denies post-election tax rises planned BBC News Lord Mandelson has sparked speculation Labour will put taxes up again if they win the election after saying economic conditions could make it "necessary". ... Labour warns of more tax rises next year Mandelson opens door to more tax rises We may raise taxes, says Lord Mandelson |
Regional District taxes on the way up Canada.com Tax increases are definitely on the way for property owners throughout in the Comox Valley. ... |
No tax increase, but schools would take a hit in latest Kansas budget plan Kansas City Star TOPEKA | The House Appropriations Committee passed a $5.1 billion budget proposal Thursday that includes no tax increases and would ... Kansas legislators push budget, stall on taxes House Leaders Say No New Taxes Kansas tax panel offers balanced budget, no new taxes |
 NY1 | Daw: Americans in Canada eligible for US tax refunds Toronto Star Filing a 2009 US income tax return by June 15 could qualify you to collect up to $400 from Uncle Sam. If you have a spouse with a US social security number ... Tax Tip: 10 facts about claiming the Child Tax Credit Income tax deadline looms in April Receive an IRS income tax credit for 2009 and reduce your taxes – IRS income ... |
 CBC.ca | Don't tax iPods Calgary Herald Angus's bill would extend Canada's existing private copying levy -- which adds a small tax to all blank media, such as CDs -- to devices that can play ... MP3 tax bill opposed by Conservatives NDP's Angus unveils copyright bill |
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