Monday, July 29, 2013
A LETTER TO THE EDITOR
FYI, I submitted the following “letter to the editor” response to a recent USA TODAY editorial on tax reform.
I provided my email address with the submission, but have not heard anything. I do not get USA TODAY in paper form and do not know if it has been printed. If it has, please let me know.
"I am a tax professional who has been preparing 1040s since 1972.
I join USA Today in supporting Max Baucus and David Camp’s 'clean slate' approach to tax reform ('Simplify tax code with blank slate: Our view' July 22, 2013). I agree that the process should start by “erasing” all “tax expenditures”, adding back only those deductions and credits that are absolutely necessary or appropriate.
My concern is that the various social welfare benefits that are currently, and erroneously, distributed via the Tax Code do not make it back to the 1040 in this process.
The purpose of the federal tax system is to raise the money necessary to run the government. Period. It should not to be used to “redistribute income” – the Tax Code is not Robin Hood - nor to deliver social welfare and other government benefits.
Providing assistance to students, welfare for the working poor, and encouragements to purchase energy-efficient products are all good programs that deserve support and continuation. But they do not belong on the 1040. They should be delivered and distributed separately out of the budget of the appropriate cabinet department
For example, the benefits provided by the Earned Income Tax Credit and the refundable Child Tax Credit should be distributed via existing federal welfare programs for Aid to Families with Dependent Children. The benefits provided by the education tax credits and deduction for tuition and fees should be distributed via existing federal programs for providing direct student financial aid. The benefits provided by the energy credit and other such personal and business credits should be distributed via Cash-For-Clunkers-like direct discount or rebate programs funded by the budget of the appropriate Cabinet department.
Distributing the benefits in this manner is much better than the current method for many reasons:
1. It would be easier for the government to verify that the recipient of the subsidy, discount or rebate actually qualified for the money, greatly reducing fraud. And tax preparers, and the IRS, would no longer need to take on the added responsibility of having to verify that a person qualifies for government benefits.
2. The qualifying individuals 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 percent” would still be receiving government benefits, but it would not be done through the income tax system, so they would actually be paying federal income tax.
4. We could measure the true cost of education, housing, health, energy and welfare programs in the federal budget because benefit payments would be properly allocated to the appropriate departments.
Item #2 is especially important in many situations. 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. But these students, and parents, need the money when the tuition and fees are due.
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. The assistance currently provided on the 1040 should be added to the benefits provided by the existing student financial aid system.
Refundable tax credits, like the Earned Income Credit and the Child Tax Credit, are a magnet for tax fraud. It has been estimated that close to 25% of all EIC claims are erroneous. This money should be delivered through the existing welfare channels, with its built-in system of checks and balances. And tax preparers should not be forced to take on the added responsibility of being a Social Worker."
What do you think?