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.

In The News:


Uncle Sam is Ready...Are You? Organizing Tips for Tax Time

Anyone who is closely related to an accountant knows that... Read More

Tax Reform, My Way

We need real tax reform and we need it now.... Read More

Tax Trap #5 -- Ignoring The IRS (and the 5 best ways to contact them!)

We all love to criticize the IRS, don't we? And... Read More

Truly Bizarre Taxes: The Tax on Illegal Drugs

One can never underestimate the enthusiasm that politicians have for... Read More

Slash Tax when Buying a Business

When buying a business, how the "purchase price" is made... Read More

Get Uncle Sam To Pay $36,000 For Your Childs Education!

Let's assume that you would like to begin saving for... Read More

Taxing Overseas Firms for SOX Compliance

The Sarbanes-Oxley Act, also called the Public Company Accounting Reform... Read More

Tax Strategy - Let Washington Pay for Your Corvette, Porsche, or Air Plane

Deducting Your Auto ExpensesAuto deductions are a very complex topic.... Read More

Tax Deduction for Alimony Payments? - Yes!

Over 50% of marriages end in divorce in the United... Read More

Correspondence From The IRS ? Yikes!

It's a moment every person dreads. You pick up the... Read More

Some Folks Pay A Lot Less Tax Than Others On Very Same Income?Did You Pay Too Much Tax In 2004?

Someone once remarked, "Next to being shot at and missed,... Read More

Need a Copy of Your Tax Return Information?

Taxpayers have two easy and convenient options for getting copies... Read More

The Annual Gift Tax Exclusion: Getting The Edge

Whether helping the kids with a down payment on their... Read More

A Taxing Investment

April 15 - The most dreaded day of the year... Read More

How To Claim CHILD TAX CREDIT The Right Way And Add An Extra $2,000 To Your Refund

The U.S. Department of Agriculture estimates that it costs nearly... Read More

Another Tax Loophole

Just image, you are a small manufacturing company, business has... Read More

To Tax or Not to Tax - This is the Question

To tax or not to tax - this question could... Read More

How to Maximize Your Home Business Tax Deductions for 2005

Someone once said, 'the best way to calculate your taxes... Read More

IRS Obtains More Than 100 Injunctions Against Tax Scheme Promoters

The IRS has obtained civil injunctions against more than 100... Read More

IRS Offer-in-Compromise, Hype or Hope?

"Settle for Pennies on the Dollar! IRS debts settled for... Read More

Tax Trap #3 -- IRS Penalties, Interest and Love Letters

As a small business owner or self-employed person, one of... Read More

How To Set Up A Tax-Saving Bookkeeping System

One of the most important, but least understood or appreciated... Read More

Identity Theft ? Impacting Your Taxes?

If your identity is stolen, your finances can quickly become... Read More

Complaince of Tax Return in Electronic Commerce Taxation

Emerging Legal issues of Tax compliance of e-business Self-assessment system... Read More

Marriage or Divorce ? Check Your Social Security Number

Newlyweds and the recently divorced should make sure that names... Read More