This was a big topic toward the end of last year, with several studies, government and private, recommending a re-writing of the mucking fess that is our current federal Tax Code, and calls for reform by both Parties, both houses of Congress, and the Administration.
I doubt that anyone disagrees that the Tax Code should be reformed, and I expect that most agree that it should be rewritten. However, 2011 is the year that this must be done – and nobody with any power is doing anything.
2012 is an election year. It is a known fact that the main goal, and primary motivation, of every elected official, at the local, state and federal level, is to be re-elected. The elected official’s secondary goal and motivation is to legislate pork for its constituents and supporters, which is really an off-shoot of goal #1. #3 on their list is to unwaveringly support and quote verbatim, without independent thought, whatever script is written for them by their Party. The proper administration of the government, which should be their primary purpose, is at most fourth on the list, if it is even on the politician’s list at all.
There is no way that any kind of substantive legislation on tax reform, or anything else, will be passed in an election year. No one wants to be in the position of having an opponent say “Congressman X is bad – he just voted to take away your deduction for home equity interest”.
The “Bush” tax cuts, that expired on December 31, 2010, and were extended at the very last minute for two years (no surprise - the idiots in Congress took the obvious easy way out rather than doing any thinking), will again expire on December 31, 2012. If nothing is done in 2011, the idiots in Congress will most likely again take the easy and cowardly way out by extending them for another two years, with the possible exception of perhaps bringing back the higher top brackets for high-earners.
Like Frankenstein, the current Tax Code must be destroyed. And re-written from scratch.
When describing how our income tax system works I usually say that “everything is table, except . . . and nothing is deductible, except . . .” The re-writing process must begin with “everything is taxable” and “nothing is deductible” and carefully examine all the current, and possible, “except”s (aka “tax expenditures”) to see which should be added.
In rewriting the Tax Code we must keep in mind that its purpose is to raise money to fund the government. It must not be used to redistribute wealth. While it may be used, sparingly, to reward or discourage certain financial behavior, it must not be once again made an easy back-door entry for social benefit legislation.
Our new Tax Code must be fair, simple, and consistent. There must be no phase-out levels or other income limitations. No “read my lips” back-door taxes. If a deduction is good for one it is good for all. There must be no “alternative” tax system – just one basic tax system that applies to all taxpayers. If we are to index items in the Code for inflation, than all items in the Code should be indexed for inflation. Definitions of terms must be uniform in all possible situations.
This post will serve to launch an ongoing series on what I personally believe should be the “excepts” in the new fair and simple Tax Code. I will talk about what and how income should be taxed and what deductions and credits (if any) should be allowed. Your comments on my recommendations are welcomed and encouraged. I especially want to hear from fellow tax professionals.
If the idiots in Congress are too lazy to keep the discussion of tax reform alive then I will attempt to do so.