Wednesday, August 13, 2014

Personal Income Tax Reform

I unloaded my thoughts on the corporate income tax a few days ago.  Might as well have a go at personal income tax too.  America is unique in that her citizens voluntarily pay their income tax.  We grumble, but we fill out our form 1040 to the best of our ability and write our checks to Uncle.  Or, since the rules have become impenetrable, we lug everything down to H&R Block, pay Block, and then pay Uncle.   In Europe, tax evasion is a national sport, and so the Europeans have to use a harder to evade Value Added Tax.  VAT is a national sales tax so it hits lower income taxpayers harder than the wealthy, but it can be collected by enforcement upon the nation's shop keepers, easier to target than the entire population.  
   A major beef with our personal income tax is it is so extremely difficult to comply with.  Every year I had to devote an entire weekend in March to doing my taxes.  When I started figuring my taxes, all I had for tools was a #2 pencil, they hadn't invented hand calculators yet.  As time went on, we got calculators and spread sheets and Turbo Tax but the IRS complicated the tax laws faster than computer assistance could help us out.  It still takes a whole weekend of cruel and unusual punishment to get my taxes done. 
    Let's go for a system where income is income, now matter where it comes from.  Income from sale of stock is just plain income.  Eliminate the concept of "capital gains".   Every one, man or woman, married or single, files their own tax return.  One single tax rate, or maybe three (one for most of us, one for the really wealthy, one for the really poor).  No deductions, exemptions,  kickbacks, mortgage interest deductions, solar panel subsidies, earned income tax credit.  Doesn't matter what you spend it on, you pay income on your income, at the same rate. Make life simpler, no loopholes in return for a lower tax rate. 
   Everybody has to pay something, especially the poor.  Rates for the poor should be quite low,  say 4%, but it is important that everybody pays something, just so everyone understands that Uncle's money comes out of everybody's hide. The wealthy ought to pay twice what regular people pay.
    Remove the IRS power to grab money out of taxpayer's bank accounts.  Let the IRS go to court and win an jury verdict against the tax payer.  And have the court handle fining the taxpayer. 

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