TAX REFORM: WHAT THE TAX CODE SHOULD NOT BE USED FOR

Fellow tax blogger Kelly Phillips Erb, aka TaxGirl, put out a call for guest posts on the subject of tax reform for FORBES.COM’s “Tax Reform Week”.  I sent her one. 

 

I just heard from KPE, who emailed me –

 

“Unfortunately my timeline only allowed me to choose a few and I was not able to include your post. I tried to choose posts that represented a range of interests, backgrounds, and perspectives.” 

 

So it shouldn’t go to waste, here is the guest post I sent KPE -

 

As a 45-year veteran tax preparer I know too well that the current US Tax Code is a complicated “mucking fess”.  It should be shredded and rewritten from scratch.

 

The one and only purpose of the Tax Code is to raise the money necessary to fund the government.  It should not be used for social engineering, to redistribute income or wealth, or to deliver social welfare and other government benefits.

 

One of the biggest problem with the current system, and responsible for a large amount of its complexity and most cases of tax fraud, is the use of the Code, and the 1040, to deliver government benefits, especially through the use of “refundable” credits.  The Internal Revenue Service, and the tax preparer community, should not be required to act as Social Workers and administer and verify government benefit payments.    

 

It is not saying that the government shouldn’t provide financial assistance to the working poor and college students, provide encouragements for purchasing health insurance, making energy-saving purchases and improvements and other ‘worthy’ actions,”  But such assistance and encouragements should not be distributed via Form 1040.

 

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 Premium Tax Credit, the energy credits, and other such personal and business credits should be distributed via direct discount payments to the appropriate insurance companies and vendors, similar to the successful Cash for Clunkers program of a few years ago, funded by the budget of the appropriate Cabinet department.

 

Distributing the benefits thIs way is much “more 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.

 

To be honest I do not expect Congress to stop this inappropriate practice.  Congress rarely does what should be done.

 

So, what do you think?

 

TTFN