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Can the IRS Learn to K.I.S.S. (with the help of Congressman Dick Armey?)Feb 12 '00 (Updated Feb 16 '00) Write an essay on this topic.Here in the United States, before taxes got fat they were flat. Before they were flat they were non-existent. Our founding fathers knew how to K.I.S.S. (Keep it simple, stupid.) The original Consitution didn't provide for income taxes, and when Congress tried to establish them in 1894, the Supreme Court declared their law unconstitutional. It wasn't until the 16th Amendment was passed in 1913 that a Tariff Act providing for federal income taxes was established. How could American citizens have passed this Amendment, you may wonder? Do we all grow too soon old and too late smart? Congress was crafty. They realized that people would probably pass the tax as long as it didn't apply to most of them personally. And back in 1913, income taxes were flat, modest, and far from universal. The rate was 1% for singles with incomes of over $3,000 or married couples with incomes of more than $4,000. A surtax from 1 to 6% was imposed for families with incomes of more than $20,000. This was a princely sum in 1913. Even in 1939, only 5% of Americans earned enough money to pay income taxes. The maximum Social Security tax (which began in 1937) was only $30 a year. Life was simpler then, and so were taxes. As America grew and society became more complex, so did the federal tax system. As rates got higher, and as more Americans earned enough to pay those rates, a clamor arose to increase deductions, incentive, and loopholes. A loophole is defined as a deduction that you're not personally entitled to; the ones you're entitled to are "birthrights." And so, America in the year 2000 is faced with an extremely complex personal income tax system that has many critics, particularly in an election year. There have been a number of "flat-tax" proposals in the past few years. One of the most popular has been proposed by House Majority Leader Dick Armey, and is reintroduced annually in Congress. I will compare his plan with the tax proposals of four Presidential candidates: Bill Bradley, George W. Bush, Al Gore, and John McCain. Armey Flat Tax Bill (HR1040) This bill provides for a flat tax of 17% on all income for both businesses and individuals. Individuals would receive generous personal exemptions, $35,400 for a family of four. Armey's website, www.flattax.gov, contains comparisons of the current tax system to his flat tax, and a flat tax calculator where people can write in three variables--income, family size, and marital status--to arrive at a flat tax figure. It's touted as a tax return that can be filed on a postcard. There are no loopholes and no deductions besides the general personal exemption. Bill Bradley's Tax Plan Senator Bill Bradley, Democrat, was the moving force behind the 1986 Tax Reform Act, which consolidated 15 brackets to two--15 percent and 28 percent. The Act also eliminated almost $200 billion in annual loopholes. He continues to fight for the elimination of corporate loopholes and wasteful tax expenditures. If elected, he wants to simplify the tax code to ensure fairness to middle-class taxpayers, expand the Earned Income Tax Credit and make the Dependent Care Tax Credit refundable. George W. Bush's Tax Fact Sheet Governor Bush, a Republican, would like to flatten tax brackets by replacing the five current tax brackets with four lower rates: 10, 15, 25 and 33 percent. He also wants to double the child credit to $1,000, expand charitable deductions for non-itemizers, eliminate the death tax, reduce the marriage penalty, and eliminate the Social Security earnings test. He opposes Internet access taxes and supports extending the moratorium on Internet Sales taxation through 2004. Al Gore's Tax Proposals Vice-President Al Gore wants to: - Establish 401(J) Life-long Learning Accounts, allowing families and employers to contribute up to $2,500 a year, to be withdrawn tax-free for qualified education or life-long learning. -Raise the standard deduction by $1400 for married couples to provide marriage penalty relief. - Relieve the marriage penalty for low-income married couples who receive the Earned Income Tax Credit. - Make permanent a Research and Development tax credit for qualifying businesses. - Increase the low personal savings rate in the United States by setting up Universal Savings Accounts for 70-80 million Americans who do not have access to either IRA's or 401K's. John McCain's Tax Plan Senator John McCain, Republican, wants to move America towards a flat tax from the bottom up by expanding the lowest 15 percent tax bracket to include 25 million more Americans. He also wants to increase the standard deduction for married couples to twice the standard deduction for single filers. He pledges to eliminate the Social Security earnings limit that penalizes senior citizens who work by taking away some of their retirement benefits. He wants to provide tax relief for military personnel deployed overseas, to double the Child Tax Credit, and to provide lower and middle-income Americans with opportunities for saving and investment. What Are the Current Chances for a Flat Tax? Without the support of any Presidential candidates, it seems as if a flat tax has little chance of passage. Only Republican candidates Bush and McCain have pledged to move towards a flatter tax by eliminating brackets or expanding the lowest tax bracket. Personally, I support tax simplification but only if it's revenue-neutral and equitable for all income brackets. I don't think that tax breaks for the rich can be built off the backs of the poor; but I also feel that too-high tax brackets provide a disincentive to some of our most financially productive citizens. I would like some tax flattening without adopting a 17% flat tax rate. The proposals offered by all four candidates appear to complicate things even further. Al Gore, in particular, has proposed several new programs which would add complexity to the tax law. How Can We Simplify Our Tax Filing? The IRS has done many things to make filing simpler. Taxpayers with less-complex returns can file by phone or electronically. No matter how complex or simple the tax law is, taxpayers can make their own filing easier by keeping scrupulous records during the year. Many of the personal finance management and tax programs reviewed on Epinions can help make record keeping a breeze. It's good to be well-read and aware of tax changes, whether you use a paid preparer or not. Accountants and tax preparers will never have the knowledge and interest in your own personal finances that you do. It seems as if every time Flat-Tax proposals are presented, dozens of other proposals with good, not-so-simple ideas surface alongside them. Americans seem to prefer "perks" over "K.I.S.S.es".  |
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