There
has been a lot of talk lately about “tax expenditures” and the 47% of Americans
who either pay absolutely no federal income tax or actually make a profit by
filing a tax return (thanks to “refundable” tax credits).
Over
the years the idiots in Congress have created a mucking fess of the Tax Code by
making it the method of delivery for various social welfare benefits and to
encourage certain beneficial purchases, which has created the 47%. This is certainly not the best, nor the most
efficient, way to deliver or distribute these benefits – but it is easy. And, as we all know, the idiots in Congress
are all for choosing the quickest and easiest way to do things rather than
actually having to sit down and think.
While
there are many “tax expenditures” that should be completely done away with,
many of the social and societal benefit programs run through the Code are
actually good and have merit. But they
should be delivered and distributed separately out of the budget of the
appropriate cabinet department – and not on the 1040.
As
I have posted here before, doing this is much “more better” for many reasons -
(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 calculate the true income tax burden of individuals. Many of the current 47% 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.
(4)
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.
(5)
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.
Item
(2) is a very important one. A major problem
with using the Tax Code to distribute government benefits via tax deductions
and credits is that the benefits are provided “after-the-fact” and not at the “point
of purchase”.
Let’s
look at the deductions and credits for tuition and fees. In order to claim these tax benefits the
student, or more likely his/her parents, must spend the money for tuition and
fees and then wait until they file their tax return to get the “student
financial aid” from the government.
These
students, and parents, need the money when the tuition and fees are due. If they do not have it at the point of
purchase they often turn to borrowing, placing themselves further in debt.
There
is currently in place a process for providing student financial aid at the
point of purchase. And this aid is based
on student and family income, using information from tax returns. Instead of giving those who qualify a tax
deduction or credit on their Form 1040 a year or more later, why not give the
same benefit, based on the same income formula, as part of the existing student
financial aid system. This way the
student, or parents, gets the money upfront to pay for college expenses or, better
yet, the money is distributed directly to the college - and there is no need
for additional borrowing.
In
the past there have been credits for purchasing energy-efficient products and
improvements, and some still exist. But
again, the money is provided after-the-fact – as much as a year or more after
the purchase. I would think more
individuals would be encouraged to purchase these items if the money was
provided upfront as a point of purchase discount. Again individuals who want to take advantage
of the eventual tax credit may be forced to borrow money to make the qualifying
purchase, creating more debt.
The
“Cash for Clunkers” program of a few years back proves that this can be done
relatively efficiently.
And,
as I have said over and over again, the Earned Income Tax Credit, refundable
and otherwise, and refundable Child Tax Credit, which, if you call a spade a
shovel, are really forms of welfare, would be better distributed via the Aid to
Families with Dependent Children program – and with substantially less fraud.
Unfortunately,
with BO re-elected and the members of Congress being the idiots they are, don’t
expect any changes in the current system any time soon.
TTFN
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