Trump’s "I Win" Tax Form

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Presidential hopeful and real estate mogul, Donald Trump, is known for his informal and crude style.  If you ask him, he just says it like it is and leaves out the fluff.  If elected to be the next president, he will apparently be leaving out the fluff on IRS tax forms as well.  In describing his tax plan, he suggested that there will be relaxed filing requirements for individual taxpayers who earn less than $25,000 and married taxpayers who earn less than $50,000. Those who fall into this group would not pay taxes under Trump’s tax plan. Not only would they be exempt from paying taxes, but it appears that they would enjoy some kind of exemption from filing taxes as well. Instead of the regular Form 1040 income tax return, these economically disadvantaged households would simply send in their one-page form to the IRS stating “I win.”

I realize that Trump was speaking figuratively in referring to this “I win” form, but part of me would love to see something like that.  Would it come with instructions like most other IRS forms? The instructions might read something like this: “If you earn less than $25,000 (individual) or $50,000 (couples) then you win.  If you win, sign and date the form.” How refreshing it would be to see something so simple and straightforward in the IRS’ document library. Would the font be huge in an attempt to fill the page? Or would they use a standard size font so as to allow room for some cute graphics or a head shot of the Donald? The new “I win” form would certainly pose some new kinds of challenges and questions for the IRS.

All joking aside, doesn’t this comment show that Trump is way out of touch with reality — at least on a subconscious level? To him the biggest win he can imagine is avoiding taxes and keeping a bigger share of his earnings. But ask some of those trying to survive on $25,000 per year if they think they are winning. I’m not sure they would agree.

Trump’s tax plan would also include capping the tax rate for businesses at 15 percent. And the highest effective tax rate would be reduced from nearly 40 percent to 25 percent for individuals. By limiting the number of exemptions wealthy taxpayers can claim, Trump says they (he) will pay higher taxes. But some experts believe that will not be the result given the tax rate reductions he is proposing.

"Citizens United" Hopes to Abolish the IRS

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There are many taxpaying citizens, and even a handful of lawmakers, who are fed up with the IRS’ mistakes and scandals and would like to see the 100-year-old agency simply disappear.  One such lawmaker is Senator Rand Paul.  He and the group Citizens United are hoping to completely and immediately abolish the IRS.

You can read their petition here.

They believe that a “streamlined and easy to understand tax code” would eliminate the need for the IRS.  That sounds great.  Who doesn’t want to simplify the tax laws these days?  But I don’t know that there is too much substance to the position of Citizens United, at least none that I can find on their website.  It just seems way too radical and hasty the way they propose to make this transition.  The problem is that they don’t really propose any kind of transition at all; they just want to be done with the IRS immediately.  In their words:

Be it now therefore resolved that we, the undersigned, demand the immediate abolishment of the Internal Revenue Service . . . [t]hat the Internal Revenue Service be abolished in its entirety by Congress without delay, excuses, or prevarication.

“Prevarication” basically means lies.  But Senator Paul is lying to himself if he thinks we can really just abolish the IRS right away without a plan in place for the aftermath.  Our nation has contemplated comprehensive tax reform for years now, but nothing has really been done about it.  I’m not sure total abolishment of the IRS is a good idea, but even if it were, it would not be something we could realistically do overnight.  This kind of change would be much like turning a giant ocean liner; it’s a slow, incremental change.

Tax Reform: Is this the Year?

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Lawmakers have, for years now, talked about simplifying the tax code — an enormous project that nobody seems to be committed to tackling.  It would be a difficult task even if lawmakers could agree on the changes, but partisan differences further complicate the task.  Maybe it takes some kind of tragic event to kick them into gear and make it a priority.  Maybe the recent IRS scandal is just the thing.

Two lawmakers hope that’s the case.  David Camp, a Michigan Republican, and Max Baucus, a Democrat from Montana, believe that the IRS scandal puts the complexity of the tax code on center stage once again.  Here’s how:

The complexity of the law didn’t require the IRS to target people for their political beliefs [but] I think giving the IRS less discretion is going to be important, and that’s what a simplified code would do.

~ David Camp, Chairman of the House Ways and Means Committee

Well, first I’m not sure a simplified code would really give the IRS less discretion.  And second, I’m not sure less discretion is always best.  I suppose if we take enough out of the tax code to effectively reduce and minimize the role of the IRS, then that could result in less discretion.  But if a simplification results in less detail where detail is needed, then it may have the opposite effect.  Generally speaking, I think the wordier the law, the less opportunity for discretion.

In my experience with IRS collections and tax relief cases, I would prefer more discretion as long as it is coupled with better training and more highly qualified personnel.  It is that inability to think outside the box and make common sense decisions that gives the IRS a bad name and creates so much frustration on the part of taxpayers and their representatives.

 

 

The TAS Approach to Tax Reform

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image via realage.com

If you recently read (or re-read) the unabridged English version of Les Misérables in anticipation of the movie that came out on Christmas day, your eyes consumed approximately 531,000 words.  This is slightly less than the word count in the Bible, which is somewhere between 800,000 – 900,000 depending on who you ask.  And if you can even imagine it, the US Tax Code contains about 4 million words!  That is almost 4 times the length of the entire Harry Potter series!

Practically everyone agrees that our tax code is too complicated, too detailed, and too long.  Tax reform and simplification was the top concern expressed by Nina Olson, National Taxpayer Advocate, in her annual report to Congress.  The complexity of the tax code breeds a number of negative consequences, including uncertainty for those with tax questions and unfair results for those seeking tax relief.

The strategy that the Taxpayer Advocate Service (TAS) recommends is to start with a clean slate by wiping out all “tax expenditures” such as exclusions, exemptions, deductions, and credits.  Then lawmakers would need to methodically decide what is absolutely necessary before bringing it back.  TAS calls this a “zero-based budgeting” approach.

I would call this the “messy closet” approach, and I like it.  Sometimes a closet gets to the point where the only way you can regain order is by taking everything out and starting over.

Romney on Tax Reform

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Mitt Romney has written an op-ed piece for the Wall Street Journal describing his vision for tax reform and tax relief.  He identifies problems with the tax code as one of our countries top problems:

  • record-breaking unemployment
  • deficit spending
  • big inefficient government & lack of leadership
  • screwed up tax code

I believe we must make the tax code simpler and fairer. We must reduce tax rates for job creators to promote economic growth. And we must still raise enough revenue to stop the endless borrowing that threatens American prosperity.

Romney lists 5 specific changes he would implement if he were elected the next US president:

  1. across-the-board 20% reduction in marginal individual tax rates
  2. reduce the corporate tax rate to 25%, transition from a world-wide taxation system to a territorial one, and make the R&D tax credit permanent
  3. maintain the low 15% rate on capital gains & eliminate it entirely for those earning below $200,000
  4. get rid of the AMT and the death tax
  5. bring stability to the tax code by making these changes permanent

Read the full op-ed piece here.  I’m not sure how he would achieve #5, although it sounds great.  So would that mean the Turbo Tax software I purchase in 2012 would also work for tax years 2013, 2014, 2015 . . . ?!

Our Next President Shouldn’t Be a Tax Schmuck

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When Mitt Romney announced that he would probably follow tradition by disclosing his tax return sometime in April, he also confirmed that his effective tax rate is around 15%.  Yes, it is low.  Yes, Romney takes full advantage of every opportunity available to him within the Tax Code to pay less taxes.  Isn’t that what anyone would do?  Here is the Tax Girl’s view:

“The thing is, I want my President – no matter who it is – to either know enough about fiscal and tax policy to make smart decisions or to surround himself (or herself) with people who can make those smart decisions. Having someone who consistently makes poor decisions about their own taxes directing tax policy seems like, I don’t know, asking Newt Gingrich for relationship advice.

~ Kelly Phillips Erb, Forbes writer / blogger

I guess the Gingrich comment was added for a little extra spice.  Ouch.

Presidential Candidate Bachmann wants to “Deep-Six” the Tax Code

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Not familiar with the term? It means that she wants to get rid of it. Throw it out.  Bury it at sea. And that’s not all she would like to do if she were elected to the presidency. She is also interested in a one-year moratorium on federal income taxes to try to fuel the economy. These are bold ideas. Could be just campaign rhetoric.

Earlier in her career Bachmann worked as an attorney for the US Treasury Dept. representing the IRS against people who underpaid or failed to pay their taxes.

One thing is for sure, if the 3.8 million word tax code were really buried at sea, it would sink like a rock.