Straight Story: Make taxes simpler!
Marketplace's economics editor Chris Farrell is hopping mad about the United States income tax system. Dramatically simplifying the tax code, he argues, could be an easy fix.
Economics editor Chris Farrell (American Public Media)
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From Philadelphia, PA, 02/11/2009
I agree that we need to see a simplification of the tax code. I thought I would never see the day when an African-American man was named as POTUTS, so I now believe that anything is possible with proper organization and mobilization.
With regard to Tom Daschle, I am really angered. Why would someone with his level of income have to fudge $15K worth of charitable giving? Our family earns an average combined income of $300K annual and we gladly give $30K+ annually to various charities including our place of worship. We have three small children and we are paying for private school, attempting to save for college, all while funding our retirement. As you can imagine, we have very little left over for things like vacations, new cars, a large home or a personal driver. However, we feel it is our moral obligation to pay taxes and we are happy to contribute to institutions that matter to us and make a difference in the lives of others. When I think of the sacrifices that we are making, stories like Daschle's make me outraged.
From Los Angeles, CA, 02/09/2009
I would agree with other listeners that getting "rid of everything except the mortgage and charitable deduction" would hurt many taxpayers.
I had to purchase my medical insurance for many years, the cost of which became astronomical. People with large medical expenses should be allowed to deduct them.
As others said, this was not Mr. Daschel and Mr. Geithner's problem.
From Fremont, CA, 02/08/2009
I fully agree that our tax system is too complex. The tax system should be a mechanism to collect revenue. If the government wants to encourage certain type of economic activities, it should fund it through spending not through the complicated deductions.
I think the national sales tax is the way to go. Everyone must spend their income. This will also capture many of the cash transactions that do not show up in the normal tax forms.
From Seattle, WA, 02/08/2009
Mr. Farrell tried to equate the tax problems of the three nominees with his proposals to reduce tax deductions, although their "mistakes" were mostly due to reasons other than taking deductions. Daschle's charity was an exception, but Farrell wants to keep the charitable deduction (as he should).
Here the thing: You can simplify the income tax system all you want, but I don't believe that it will help the two biggest problems which are unreported income and uncollectible taxes.
Mr. Daschle did not report all of his income, period. It is his responsibility as a self-employed individual to account for all of his compensation - I don’t care what ends up on a 1099-MISCELLANEOUS form.
Mr Farrell did not suggest abolishing the household employer taxes which resulted in Ms. Killifer's unpaid taxes. Abolishing these taxes would only serve to increase unreported income.
Mr. Farrell did not suggest abolishing the FICA (SS and Medicare) taxes which resulted in Mr. Geithner's unpaid taxes. Geithner had ample evidence he was subject to these taxes but chose to believe otherwise. I don't allow my clients to get away with this and am appalled that IRS employees must now answer to this man while trying to enforce the tax laws. IRS employees must meet tax reporting and filing standards that are much higher than the average taxpayer.
In his simplistic proposal, Mr. Farrell seems to be oblivious to the fact that any person who is self-employed and/or running a business needs to properly account for taxable income. As long as we have an income tax, there must be a set of rules which attempts to level the playing field by telling businesses how to calculate the net income upon which tax is to be paid. (Sales tax proponents will point out the advantage of their schemes in this regard, but I'm not one of them).
The average worker/taxpayer in this country does not understand that our unreported income and uncollected tax gaps are so huge that taxes could be significantly reduced if everyone paid their fair share. This applies from paid-under-the-table household workers to former Senators riding around in client-provided limos to corporations using offshore tax-evasion schemes. The most egregious tax evasion occurs at the income level, not the deduction level.
02/08/2009
I have to disagree with your "get rid of everything except the mortgage and charitable deduction" notion because much of the other deductions/loopholes only benefit the "well-heeled." As a grad student, the student loan interest deduction and the lifelong learning credit significantly bump up my return enough to literally let me eat more each month if I spread it over the year. Not all of us can afford to buy property and have a mortgage, especially if we are buried in student loan debt. Who's the elitist now?
From Rumson, NJ, 02/08/2009
On this comment page, there any many voices saying the same thing, that the tax problems of the nominees would not go away with tax simplification. Tom Daschle's income in the form of a car and driver would still be income. Housekeepers would still be due the benefit of tax withholdings by their employer. Does Chris Farrell believe otherwise? Too often a publisher allows clearly wrong views to go unedited or unchallenged. Shame on Marketplace. Was Marketplace's economics editor acting as an expert or as an advocate? Did his interviewer really not notice?
From North Andover, MA, 02/08/2009
It's one thing for a TV comedian/commentator to lump in Nancy Kellefer but why did Chris mention her as if her sub $1000 problems were income-tax related. Chris's reform would do nothing about a D.C. local employment tax. Cheap shot, Mr. Farrell.
From Burlington, NC, 02/08/2009
Simplification of the tax code is certainly a topic worthy of debate. But to suggest, as this commentary did, that complexity of the tax code is to blame for the tax woes of Geitner and Daschle is highly misleading. Both Geitner and Daschle ran into problems that have nothing to do with the complexity of the tax code. Geitner was self-employed, and failed to pay the employer portion of his payroll taxes, even though he had a) received extra compensation to cover this amount and b) had signed a form from the IMF acknowledging his obligation to pay the employer portion. Daschle ran afoul for not reporting the car/driver he had received as income. Neither of these are problems of tax loopholes. Both are examples of getting too cute by half and not reporting all of your income. Your commentator knows better.
From HI, 02/07/2009
"
hit the nail on the head, but not hard enough!
"
Mark also hit the nail squarely. Our tax code and our bailout plans both look like devices from the workshop of Rube Goldberg.
Feudal Lords did much better job of it.
The king taxes the Dukes.
The Dukes tax their Earls
The Earl taxes his sheriffs
The sheriff collects the penny from the serf.
Using all the hidden taxes, our wealthy tax us peasants thus why the IRS needs to send us all those Rube Goldberg forms each year. Why they don't just let us save the money for our landlords then tax little more from the wealthy land holders. It would save lot of paper -- lot of confusion. They want to prevent poverty; simultaneously stimulate economy thus stop taxing poor people. We have been taxed out of business.
Simplicity could make our nation more competitive.
From Schaumburg, IL, 02/07/2009
I've been harping about tax simplification for years. I wrote to my congress critters and asked them how many pages of tax code they were responsible for repealing. No answers. With a tax code of 10,000+ pages that no CPAs even understand, our taxes are just a scam. Every exemption, deduction, special tax case, exception or special form allows someone to NOT pay their share. And it generally isn't the average taxpayer. We should be beyond angry.
With regards to income, if I can buy a loaf of bread with the dollar in my hand, it is income, be it wage, interest, dividends or capital gains. We should apply that bread test universally and impose the same tax rates. Wage income is discriminated against in the current system. That means most Americans are in the back of the bus. I don't understand how this baloney got sold to so many people.
Chris, you hit the nail on the head, but not hard enough!
From Atlantic Beach, FL, 02/07/2009
An excellent tax simplification proposal in Congress, HR25 the Fair Tax, will replace all federal income, payroll and business taxes with a simple retail sales tax plus an electronic monthly rebate so that nobody pays taxes on spending up to the official poverty level. This sales tax is progressive. See www.fairtax.org for details.
From Centennial, CO, 02/07/2009
The recommended changes will not resolve the problems of Mr. Geithner or Mr. Daschle. In Mr. Geithner's case he "forgot" to pay his self employment tax after signing the statement documenting that he knew he needed to do it. In Mr. Daschle's case he didn't realize that the gift of a limo and driver was actually income. Changing the credits and deductions will do nothing to stop these tax cheats.
From Akron, OH, 02/07/2009
I'm very much in agreement. I'd be willing to lose my mortgage and student loan deductions if it meant that no one received a tax break for procreating. It frosts me that people who create more work for schools, clinics, libraries and police agencies get an 18+ year tax break for creating a burden.
From Longmont, CO, 02/07/2009
If I could mandate one tax law change, it would be a rule that all members of congress would be required to do their own taxes with paper, pencil and a calculator. They could make calls to the standard public IRS help line. It would only take one or two tax seasons to get the tax laws cleaned up. But how do we get them to pass that rule?
From Burlington, VT, 02/07/2009
I tend to agree with Chris Farrell about the income tax system and how it is too complex, and I would agree with the suggestions to simplify, providing that the system maintains or enhances the progressive nature it supposedly now has. Where I believe he missed the boat was in responding to the three recent nominees (Geithner, Killifer, and Daschle). The problem there is that Daschle is the only one for whom that fix would have had an effect. Both Geithner and Killifer failed to pay the Social Security payroll tax, which is very simple and independent of the income tax. Geithner's mistake apparently was inadvertent omission of paying the employer's half which had been added directly to his paycheck specifically for him to pass through. Killifer simply skipped paying the required social security tax for her domestic help - both the employee and employer half - which seems even more like willful ignorance and thus real tax evasion. In any case, these are not people for whom the simplification of income tax code would have affected their failure to pay taxes they owed.
From Grand Marais, MN, 02/07/2009
I was going to write a response but than I read Bob Whittenbarger comment and realized that he said it better than I could. Thank you Chris for the story, for being hopping mad and thank you Bob for expressing what I felt. Waiting for something I can do...
From Burnsville, MN, 02/07/2009
Governments (we) use the tax code to encourage certain societal behaviors. If the system is as simple as you suggest, how would that function be continued?
02/07/2009
Chris Farrell's assertion that elimination of most itemized deductions and other unspecified simplifications to the tax code would have avoided the current disgraces of unreported taxable income misses the point. The complex array of deductions and credits is not the issue here. Defining what is taxable income is the issue. There are many forms of taxable income that don't involve W2 or 1099 statements. It's a complex world and we have a complex tax code that attempts to deal with it. Tax simplification plans generally result in higher taxes on those with less complex situations (like W2 wage earners) and lower tax liabilities on those with more complex situations who will always have gray areas to manipulate. A lot, but certainly not all, of the complexity of the tax code is aimed at making sure those manipulations don't result in unfair tax avoidance by those with more options and resources that the average taxpayer. Again, the definition of income is at the heart of the issue, not the complexity of deductions and credits. These are fair game for another discussion, but it is a separate issue.
From Minneapolis, MN, 02/07/2009
Thank you for this essay. I agree that the greatest area for abuse is in the tax code credits and deductions. Lets make tax code eqaual to all. You are well off? Pay your taxes, and be greatful in your success. It is time that the Federal Goverment makes an effort towards balancing the budget. This is an exellent starting point.
From Charleston, IL, 02/07/2009
I think there must be hundreds of thousands of not millions of "ordinary" people who share Chris's feelings about revising the tax code. I'm certainly one of them BUT what can those of us who feel that way DO to effectively move the Congress toward that goal? What organizations advocate for tax reform? Which members of Congress sit one committees that handle tax reform legislation? etc., etc.. In general, I think it would be very helpful for columnists--such as but not only Chris--who advocate for some sort of change to suggest some concrete action(S)s that might be taken to accomplish the objective. Thanks.
From East Syracuse, NY, 02/07/2009
I just heard Chris Farrell's piece on simplifying the tax code. Notice it is 6:30 am EST and I am in the office getting started on my day of preparing business and personal tax returns, something I do 7 days a week, 80 plus hours a week from now to April 15. Not only are tax rules too complex for most people to adhere to, it is evident that our Congress men & women and other public servants feel they can get away with inadvertent omissions from their own returns (yeah, right); you can't tell me Tom Daschle didn't know he stretched $15,000 on his charitable giving and thought he wouldn't get caught. And Geitner as Treasury Sec'y? What kind of message does that send to taxpayers that the head of all of us who work for tax compliance and honesty in reporting should himself not research and properly apply the rules of reporting his income. I am already the "tax police" making sure people don't miss a 1099 that was on their return in the prior year and that they have evidence for their deductions. Farrell's piece would give these bozos the benefit of the doubt, that they made honest mistakes because the code is too comples. Maybe so. I know that can happen on a big return and that is why I lose sleep over high income returns, that I might miss something, but I personally think some of these people are sloppy for a reason, that they think they can get away with it. Oh, and among other things that could simplify the code, make meals and entertainment completely nondeductible and set caps on the deductibility of what is "reasonable and necessary" for certain expenses that tend to be officer/owner perks. Well, back to work. I have hours to work so honest, W2 middle income America can fork over their hard earned money to support the Washington gravy train.
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