William Perez of WILLIAM’S TAX BLOG at About.com “turned me on” to the article “The 5 Best Tax Changes We Won't See” by Bill Bischoff at SmartMoney.com.
Here are Bill Bishoff’s five tax proposals -
· Stop Double-Taxing Social Security Benefits
· Eliminate ‘Refundable’ Tax Credits
· Get Rid of Deceptive Phaseouts
· Dump the Alternative Minimum Tax (AMT)
· Let Employees Deduct Health-Insurance Premiums
These are some pretty good proposals, Bill. I have been touting most of them for years now. Here is my 2 cents worth -
1) Bill says that Social Security is currently “double-taxed”. I suppose to some extent this is partially true. Here is a suggestion - Mandatory employee contributions to Social Security (and Medicare) are not considered “pre-tax” for federal income tax purposes, as are most employer pension plans (and health insurance premiums). So why not make the FICA tax paid by employees “pre-tax” – and the self-employment tax fully deductible – and treat Social Security benefit payments the same as any other pension distribution. I don’t think I have ever heard this proposed anywhere.
2) Bill hits the nail on the head when he says of “refundable” credits – “This is disguised welfare being laundered though the tax system. Plus, it encourages tax fraud.” I certainly agree with Bill when he says, “If Congress wants to create welfare programs without any monitoring, that’s a political decision. But they should dole out the payments in transparent ways, not by sneaking them through the tax system.”
3) If a tax deduction or credit is appropriate it is appropriate for all taxpayers and should be allowed for all. The phase-out of deductions and credits is just a back door way of raising tax rates. As Bill says, “If higher tax rates are deemed necessary, then politicians should raise them in a straightforward and transparent way.” He is again right on the money when he says, “Deception and lack of transparency make for horrible tax policy and, unfortunately, your elected representatives won’t change their behavior until you make them.”
4) Everyone hates the dreaded AMT. I can’t think of any politician in either party who publicly supports it as good tax policy. But yet it lives on. As I have said before, the existence of the dreaded Alternative Minimum Tax is a perfect example of the laziness of Congress. Instead of fixing the problems in the Tax Code Congress just created a “quick fix” by establishing an alternative tax system. And the dreaded AMT does not hit truly high-income taxpayers – none of my millionaire clients pay the tax – but middle and upper-middle class taxpayers. One reason that has been put forward as to why the Republicans are not in a great hurry to repeal this tax is that most of its victims are in high-income and high-tax “blue” states. The dreaded AMT must be destroyed!
5) Many taxpayers who pay for all or part of their health insurance premiums get to treat their payments as “pre-tax” if the employer has a “Section 125 cafeteria plan”. And self-employed individuals can deduct 100% of their health insurance premiums. So what not let employees whose payments are not treated as “pre-tax” on their W-2 also claim a deduction – so that all taxpayers are treated equally?
So what do you think about Bill’s “Big Five” tax change proposals?
FYI – any highlights in the above quotes are mine.
TTFN
Here are Bill Bishoff’s five tax proposals -
· Stop Double-Taxing Social Security Benefits
· Eliminate ‘Refundable’ Tax Credits
· Get Rid of Deceptive Phaseouts
· Dump the Alternative Minimum Tax (AMT)
· Let Employees Deduct Health-Insurance Premiums
These are some pretty good proposals, Bill. I have been touting most of them for years now. Here is my 2 cents worth -
1) Bill says that Social Security is currently “double-taxed”. I suppose to some extent this is partially true. Here is a suggestion - Mandatory employee contributions to Social Security (and Medicare) are not considered “pre-tax” for federal income tax purposes, as are most employer pension plans (and health insurance premiums). So why not make the FICA tax paid by employees “pre-tax” – and the self-employment tax fully deductible – and treat Social Security benefit payments the same as any other pension distribution. I don’t think I have ever heard this proposed anywhere.
2) Bill hits the nail on the head when he says of “refundable” credits – “This is disguised welfare being laundered though the tax system. Plus, it encourages tax fraud.” I certainly agree with Bill when he says, “If Congress wants to create welfare programs without any monitoring, that’s a political decision. But they should dole out the payments in transparent ways, not by sneaking them through the tax system.”
3) If a tax deduction or credit is appropriate it is appropriate for all taxpayers and should be allowed for all. The phase-out of deductions and credits is just a back door way of raising tax rates. As Bill says, “If higher tax rates are deemed necessary, then politicians should raise them in a straightforward and transparent way.” He is again right on the money when he says, “Deception and lack of transparency make for horrible tax policy and, unfortunately, your elected representatives won’t change their behavior until you make them.”
4) Everyone hates the dreaded AMT. I can’t think of any politician in either party who publicly supports it as good tax policy. But yet it lives on. As I have said before, the existence of the dreaded Alternative Minimum Tax is a perfect example of the laziness of Congress. Instead of fixing the problems in the Tax Code Congress just created a “quick fix” by establishing an alternative tax system. And the dreaded AMT does not hit truly high-income taxpayers – none of my millionaire clients pay the tax – but middle and upper-middle class taxpayers. One reason that has been put forward as to why the Republicans are not in a great hurry to repeal this tax is that most of its victims are in high-income and high-tax “blue” states. The dreaded AMT must be destroyed!
5) Many taxpayers who pay for all or part of their health insurance premiums get to treat their payments as “pre-tax” if the employer has a “Section 125 cafeteria plan”. And self-employed individuals can deduct 100% of their health insurance premiums. So what not let employees whose payments are not treated as “pre-tax” on their W-2 also claim a deduction – so that all taxpayers are treated equally?
So what do you think about Bill’s “Big Five” tax change proposals?
FYI – any highlights in the above quotes are mine.
TTFN
2 comments:
Thanks for the kind comments. I agree with you that FICA/SECA taxes should be "pretax" for the income tax. That makes total sense!
However I disagree with the idea of refundable credits. These are very useful for self-employed people in particular, as we can use such credits to help offset the self-employment tax. Perhaps we could just move the concept of non-refundable to mean non-refundable after all the additional taxes?
WP-
You do make a good point. Credits should be allowed against "other taxes" like the self-employment tax. But nobody should "make a profit" by simply filing a tax return.
TWTP
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