The tax code is a government document of more than 10 million words that details the rules individuals and businesses follow in computing their federal taxes. Over the past 60 years, the instrument has grown nearly 144,500 words annually, according to the Tax Foundation.
This complexity creates migraine headaches for taxpayers. Americans spend about 6.1 billion hours to comply with the onerous tax code. Ninety percent of taxpayers hire a professional to prepare their taxes at a cost of $233.8 billion annually.
No wonder a Pew Research poll in 2015 found that 72 percent of Americans are confounded by the incomprehensible code. Even today, as Americans grapple with the new tax plan details unveiled by the House and Senate, it's impossible to discern the dollar impact on the average household.
Even if rates of tax are lowered, it may not translate into an individual household owing less money to Uncle Sam. That's because the tax code contains guidelines for deductions and exemptions that lower the taxable income. The rate applies to adjusted taxable income not the total income.
Some deductions are well known. For example, the write-offs for interest on home mortgages, charitable donations and medical expenses. Others are not so well understood. Income may be taxed at different rates depending on the source. Some income may be excluded from taxation.
In many ways, that renders the tax rate meaningless. For instance, what if tax deductions for child care and educational expenses are abolished, but the tax rate is lowered by five percent. Depending on the dollar amount of the lost deduction, it may mean a higher tax bill for some.
If you include businesses in this discussion, the code takes on even more importance. The code includes a legion of business offsets and credits, referred to erroneously as loopholes. Although the official business tax rate is 39.1 percent, most corporations pay only to 10 to 15 percent in taxes.
Individuals also game the tax code. In theory, households earning over $200,000 are supposed to pay around 40 percent in taxes. In practice, studies show that the effective rate is 23 percent because they are armed with tax planners and lawyers paid to legally reduce their tax bill.
That's why tax rates distort tax fairness. To rectify this imbalance, Congress needs to quit fiddling at the margins on the tax issue. If lawmakers and the president are serious about tax reform, the first step should be to scrap the arcane tax code. Blow it to smithereens.
In its place, Congress should adopt a simple flat tax for all Americans, regardless of income. No individual deductions. No business loopholes. No special treatment for income based on the source. Whatever money you make, no matter how it's earned, it is taxed at the same rate. Period.
Some will scream "Unfair!" They want a regressive tax system that punishes the rich. The top 10 percent already pay two-thirds of the taxes collected from individuals. Mount Everest taxpayers--those in the 0.1 percent echelon--make up 16 percent of all household taxes.
Pandering politicians, who don't give a wit about fairness, demonize those with personal fortunes and foster class envy. That's why brainwashed Americans believe the wealthy do not pay their fair share. The bottom 50 percent of taxpayers contribute 2.8 percent of federal tax revenue. Talk about unfair.
If the object of the tax code is to inflict pain on the wealthiest Americans, then perhaps it would be better to just toss the filthy rich in jail and confiscate all their wealth. (Insert tongue in cheek here.) Under a flat tax or virtually any other system, the wealthy will always pay the largest share of taxes.
Once Congress passes a flat tax, then it must address payroll taxes. For many Americans, payroll taxes ( Medicare, Social Security, etc.) take a larger bite out of their paychecks than federal income taxes. All but the top 20 percent of Americans are in this tax pickle.
That would crack open Pandora's box because Congress would have to wrestle with fixing Medicare and Social Security. Too many seniors would howl. For similar reasons, Congress avoids dealing with the tax code. Accounts, lawyers and tax preparation firms would throw a tantrum.
Real tax reform requires political courage and a honest debate instead of political grandstanding. For that reason, it won't happen. Not in Washington. Not this year. Not ever. Swamp creatures prefer tax favoritism over fairness because that's what the lobbyists and special interests want.
And these same deep-pocketed lobbyists and special interest groups pay for the re-election campaigns of those who inhabit the swamp. They are the masters most lawmakers serve, not average American taxpayers.
In many ways, that renders the tax rate meaningless. For instance, what if tax deductions for child care and educational expenses are abolished, but the tax rate is lowered by five percent. Depending on the dollar amount of the lost deduction, it may mean a higher tax bill for some.
If you include businesses in this discussion, the code takes on even more importance. The code includes a legion of business offsets and credits, referred to erroneously as loopholes. Although the official business tax rate is 39.1 percent, most corporations pay only to 10 to 15 percent in taxes.
Individuals also game the tax code. In theory, households earning over $200,000 are supposed to pay around 40 percent in taxes. In practice, studies show that the effective rate is 23 percent because they are armed with tax planners and lawyers paid to legally reduce their tax bill.
That's why tax rates distort tax fairness. To rectify this imbalance, Congress needs to quit fiddling at the margins on the tax issue. If lawmakers and the president are serious about tax reform, the first step should be to scrap the arcane tax code. Blow it to smithereens.
In its place, Congress should adopt a simple flat tax for all Americans, regardless of income. No individual deductions. No business loopholes. No special treatment for income based on the source. Whatever money you make, no matter how it's earned, it is taxed at the same rate. Period.
Some will scream "Unfair!" They want a regressive tax system that punishes the rich. The top 10 percent already pay two-thirds of the taxes collected from individuals. Mount Everest taxpayers--those in the 0.1 percent echelon--make up 16 percent of all household taxes.
Pandering politicians, who don't give a wit about fairness, demonize those with personal fortunes and foster class envy. That's why brainwashed Americans believe the wealthy do not pay their fair share. The bottom 50 percent of taxpayers contribute 2.8 percent of federal tax revenue. Talk about unfair.
If the object of the tax code is to inflict pain on the wealthiest Americans, then perhaps it would be better to just toss the filthy rich in jail and confiscate all their wealth. (Insert tongue in cheek here.) Under a flat tax or virtually any other system, the wealthy will always pay the largest share of taxes.
Once Congress passes a flat tax, then it must address payroll taxes. For many Americans, payroll taxes ( Medicare, Social Security, etc.) take a larger bite out of their paychecks than federal income taxes. All but the top 20 percent of Americans are in this tax pickle.
That would crack open Pandora's box because Congress would have to wrestle with fixing Medicare and Social Security. Too many seniors would howl. For similar reasons, Congress avoids dealing with the tax code. Accounts, lawyers and tax preparation firms would throw a tantrum.
Real tax reform requires political courage and a honest debate instead of political grandstanding. For that reason, it won't happen. Not in Washington. Not this year. Not ever. Swamp creatures prefer tax favoritism over fairness because that's what the lobbyists and special interests want.
And these same deep-pocketed lobbyists and special interest groups pay for the re-election campaigns of those who inhabit the swamp. They are the masters most lawmakers serve, not average American taxpayers.
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