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:

Walmart gets tax break in Queensbury  Glens Falls Post-Star
RMD Waiver + Stimulus Check = Tax Credit  Kiplinger's Personal Finance

Identity Theft ? Impacting Your Taxes?

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

Tax Tips - Which Tax Form Is Right For Me?

IRS Tax forms can be confusing.Am I a 1099 or... 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

Taxation of Isle of Man Companies from April 2006

At the present time a company incorporated in the Isle... Read More

IRS Certifies 2006 Toyota Hybrid for Clean Fuel Deduction

The Internal Revenue Service has certified the 2006 Toyota Highlander... Read More

Employment Taxes ? What Are They?

If you have employees, you are responsible for paying a... Read More

How To Set Up A Tax-Saving Bookkeeping System

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

Small Business Tax Deduction - Write-Off Bad Debts

Practically every small business has receivables that it cannot obtain... Read More

2005 Ford Escape Hybrid Certified For Clean-Fuel Deduction

If you are environmentally conscious and purchase a 2005 Ford... Read More

Employment Taxes ? Depositing With The IRS

If your business has employees, you must pay employment taxes.... Read More

What Is Tax Law?

The federal tax code is complex. This complexity generally arises... Read More

Rearrange Your Affairs For Maximum Tax Savings

One way to maximize your business profits is by reducing... Read More

Save Money on Taxes - Is the Only Way to Get Your Tax Savings is to Sleep With an IRS Agent?

Tilting the Tax Laws in Your Favor.In order to accelerate... Read More

Tax Tips to Save Money on Taxes - Get the Corporate Kick and Save Loads of Money

Why a Corporation Helps Save You TaxesThe Tax Rates (Notice... Read More

Small Business Tax Deductions for Year End 2004

As a small business owner, it's wise to familiarize yourself... Read More

Complaince of Tax Return in Electronic Commerce Taxation

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

Small Business Tax Issues for Self-Employed Individuals

The United States is a nation of entrepreneurs. There are... Read More

SFR Substitute for Returns: IRS Action on Non-Filers

In the latest Star Wars episode, the evil empire executes... Read More

Tax Trap #1 -- Waiting to Incorporate: What A Difference A Date Can Make

NOTE: This is the first in a series of 5... Read More

How to Maximize Your Home Business Tax Deductions for 2005

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

Knock-Knock-Knock

Knock-Knock-KnockWho's there?The IRS!The next quarterly payment of estimated income tax... Read More

Car Donation: An Easy Way to Support Your Favorite Charity and Get a Tax Deduction

Most people look forward to getting their tax return, but... Read More

Getting A Second Extension to File 2004 Taxes

Millions of people file tax return extensions every year. The... Read More

10 Thoughts on Tax Offer in Compromise

Beware of advertisements that claim to settle tax debts for... Read More

Amending Procedural Laws for Collection of E-taxation

The electronic transaction ordinance defines the certificated copies in which... Read More