Over at the ROTH AND COMPANY TAX UPDATE BLOG Joe Kristan tells us that according to a “Former Tax Policy Chief: Tax System ‘Nearing Collapse’".
Joe quotes from a “sobering speech from Pamela F. Olson, a former Treasury assistant secretary for tax policy” on the mucking fess out federal income tax system has become.
Ms Olson joins Joe, myself, and other tax bloggers in our concerns regarding how the cafones in Washington have totally FU-ed the Tax Code. Her comments certainly bear repeating.
“Congress decided to administer all manner of benefits through the tax code decades ago, but it has become particularly popular to do so in the last 15 years. Somewhere in the 1990s Republicans realized they could enact promised tax cuts with targeted provisions in the tax code, and Democrats realized they could enact promised spending programs with targeted provisions in the tax code.”
She hits the nail on the head with -
“That is unfortunate, because the tax code is a poor delivery vehicle for tuition tax breaks that can't be delivered until long after the tuition check is written, for income support paid on the basis of last year's annual income, or for healthcare for those without employer-provided coverage. It is also a poor delivery mechanism because it fails to provide an incentive for many at the bottom of the income ladder who pay home mortgage interest but cannot deduct the interest, who set aside money in savings accounts but do not qualify for the savers credit, whose employers don't provide a retirement savings plan.”
Her bottom line –
“In the tax world, instead of simplifying to increase productivity in compliance and administration, we keep adding complexity -- more rules, more limitations, more terms, more conditions, more qualifiers, more provisos, and more exceptions. The result is that our system gets slower and slower and more inefficient.”
As I have said in an August 2009 post “There Has Got To Be A Better Way” (which also bears repeating) –
“So why, then, could not the U.S. Department of Education automatically apply the American Opportunity Credit, or the HOPE or Lifetime Learning Credit, towards the price of tuition, with the possibility of any remaining available credit being applied at the college book store? Then the government would be assured that the money is actually spent on continuing education. If the student “drops out” the unused portion of the “government subsidy” would be returned to the Department of Education.
And why, then, could not the First Time Homebuyer Credit be applied to the purchase of a qualifying home at the actual closing? Then the government would be sure that a primary personal residence was actually being purchased by a “first-time” homebuyer. A “Statement of Qualification” could be added to the papers filed with the purchase on which the purchaser(s) would certify, under penalty of perjury, that he/she/they qualify for the $8,000 payment.
If there are credits to be provided to cover health insurance premium purchases in any upcoming Health Care Reform bill, why not have the U.S. Department of Health and Human Services credit the amount to the price of the actual premiums? Then the government would be sure that the money is actually spent on health care coverage.
Perhaps the amount of Retirement Savings Credit allowed could be actually deposited by the government into the individual’s IRA or other retirement savings account. Then the money would actually add to and help to grow retirement savings.
And in the case of the Earned Income Credit, why not just provide the qualifying individual or family with a supplemental welfare check, perhaps through the SSI system?
Doing things in this way would be beneficial in many ways.
(1) It would be easier for the government to verify that the recipient of the subsidy or hand-out actually qualified for the money, greatly reducing fraud. And tax preparers would no longer need to take on the added responsibility of having to verify if a person qualified for government funds.
(2) The qualifying individual(s) would get the money at the “point of purchase”, when it is really needed, and not have to go “out of pocket” up front and wait to be reimbursed when they file their tax return.
(3) We would be able to actually measure the true income tax burden of individuals. No longer would about half of the American population either pay absolutely no federal income tax or actually make a profit from filing a tax return. These people would still be receiving government hand-outs, but it would not be tied into the income tax system so they would actually be paying federal income tax.
(3) We could measure the true cost of education, housing, health, welfare, etc programs in the federal budget because the various subsidies would be properly allocated to the appropriate departments and not be reported as a part of net income collected via income tax.
(4) The Tax Code would be much less complicated, the cost to the public for preparing a tax return would be reduced, and the IRS would have much less to process and to audit.”