Tuesday, October 23, 2007

A VERY BAD IDEA

TAXPROF Paul Caron’s TAX NEWS ROUND-UP takes us to an Associated Press article from CBS News on presidential hopeful Barack Obama's tax proposals.
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One proposal is “to direct the IRS to send pre-filled tax forms to 40 million workers who take the standard deduction and have a bank account. They would simply have to sign and return it, which Obama estimates would save more than $2 billion in tax preparation fees and 200 million hours of work.”
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"There's no reason you should have to pay H&R Block to spend hours and hours. You should just get a form," Obama said. "It should take you about five minutes. That should save you a lot of time and aggravation."

While I agree with BO that there is no reason you should have to pay H&R Block (in any situation), I certainly do not agree with his plan to send “pre-prepared” short forms to taxpayers. The idea is ridiculous!

Taxpayers should be allowed to determine if they will claim the standard deduction – and not be told, or even suggested, by the IRS that this is what they should do. Individual situations change from year-to-year – how does the IRS know that a taxpayer is better off filing a short-form simply from his W-2 and Form 1099-INT information. Taxpayers should also be allowed to consult a competent tax professional to determine if the standard deduction or a short-form will result in the least tax liability.

Let’s face it. There are a lot of taxpayers who would save mucho dinero by itemizing or taking advantage of various other tax adjustments or credits – but who would simply sign a short-form and pay a lot more tax then they would or should have to if the IRS sent them a pre-prepared return and requested a signature.

And looking at the issue from the government side – who is to say that the only income a taxpayer has to report is included on the W-2 and Form 1099-INT information that the IRS has in its computer matching program. Besides, pre-printing and mailing out such forms would be a waste of the government’s money.

Actually I agree with the basic thought behind this totally unacceptable idea – that the current Tax Code is too complicated and needs to be simplified.

If the Tax Code itself were substantially simplified, with a flat tax and a system under which all taxpayers would file a simpler “short-form” (like the half-page return suggested by the President’s Advisory Panel) than it might be ok for the IRS to send out pre-printed returns. But certainly not under our current tax system.

So what do you think?

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