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Straight Story: Make taxes simpler!
Economics editor Chris Farrell
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About the author
Christopher Farrell is economics editor of Marketplace Money, a nationally syndicated one-hour weekly personal finance show produced by American Public Media.Pages
I agree that we need to see a simplification of the tax code. I thought I would never see the day when an African-American man was named as POTUTS, so I now believe that anything is possible with proper organization and mobilization.
With regard to Tom Daschle, I am really angered. Why would someone with his level of income have to fudge $15K worth of charitable giving? Our family earns an average combined income of $300K annual and we gladly give $30K+ annually to various charities including our place of worship. We have three small children and we are paying for private school, attempting to save for college, all while funding our retirement. As you can imagine, we have very little left over for things like vacations, new cars, a large home or a personal driver. However, we feel it is our moral obligation to pay taxes and we are happy to contribute to institutions that matter to us and make a difference in the lives of others. When I think of the sacrifices that we are making, stories like Daschle's make me outraged.
I would agree with other listeners that getting "rid of everything except the mortgage and charitable deduction" would hurt many taxpayers.
I had to purchase my medical insurance for many years, the cost of which became astronomical. People with large medical expenses should be allowed to deduct them.
As others said, this was not Mr. Daschel and Mr. Geithner's problem.
I fully agree that our tax system is too complex. The tax system should be a mechanism to collect revenue. If the government wants to encourage certain type of economic activities, it should fund it through spending not through the complicated deductions.
I think the national sales tax is the way to go. Everyone must spend their income. This will also capture many of the cash transactions that do not show up in the normal tax forms.
Mr. Farrell tried to equate the tax problems of the three nominees with his proposals to reduce tax deductions, although their "mistakes" were mostly due to reasons other than taking deductions. Daschle's charity was an exception, but Farrell wants to keep the charitable deduction (as he should).
Here the thing: You can simplify the income tax system all you want, but I don't believe that it will help the two biggest problems which are unreported income and uncollectible taxes.
Mr. Daschle did not report all of his income, period. It is his responsibility as a self-employed individual to account for all of his compensation - I don’t care what ends up on a 1099-MISCELLANEOUS form.
Mr Farrell did not suggest abolishing the household employer taxes which resulted in Ms. Killifer's unpaid taxes. Abolishing these taxes would only serve to increase unreported income.
Mr. Farrell did not suggest abolishing the FICA (SS and Medicare) taxes which resulted in Mr. Geithner's unpaid taxes. Geithner had ample evidence he was subject to these taxes but chose to believe otherwise. I don't allow my clients to get away with this and am appalled that IRS employees must now answer to this man while trying to enforce the tax laws. IRS employees must meet tax reporting and filing standards that are much higher than the average taxpayer.
In his simplistic proposal, Mr. Farrell seems to be oblivious to the fact that any person who is self-employed and/or running a business needs to properly account for taxable income. As long as we have an income tax, there must be a set of rules which attempts to level the playing field by telling businesses how to calculate the net income upon which tax is to be paid. (Sales tax proponents will point out the advantage of their schemes in this regard, but I'm not one of them).
The average worker/taxpayer in this country does not understand that our unreported income and uncollected tax gaps are so huge that taxes could be significantly reduced if everyone paid their fair share. This applies from paid-under-the-table household workers to former Senators riding around in client-provided limos to corporations using offshore tax-evasion schemes. The most egregious tax evasion occurs at the income level, not the deduction level.
I have to disagree with your "get rid of everything except the mortgage and charitable deduction" notion because much of the other deductions/loopholes only benefit the "well-heeled." As a grad student, the student loan interest deduction and the lifelong learning credit significantly bump up my return enough to literally let me eat more each month if I spread it over the year. Not all of us can afford to buy property and have a mortgage, especially if we are buried in student loan debt. Who's the elitist now?
On this comment page, there any many voices saying the same thing, that the tax problems of the nominees would not go away with tax simplification. Tom Daschle's income in the form of a car and driver would still be income. Housekeepers would still be due the benefit of tax withholdings by their employer. Does Chris Farrell believe otherwise? Too often a publisher allows clearly wrong views to go unedited or unchallenged. Shame on Marketplace. Was Marketplace's economics editor acting as an expert or as an advocate? Did his interviewer really not notice?
It's one thing for a TV comedian/commentator to lump in Nancy Kellefer but why did Chris mention her as if her sub $1000 problems were income-tax related. Chris's reform would do nothing about a D.C. local employment tax. Cheap shot, Mr. Farrell.
Simplification of the tax code is certainly a topic worthy of debate. But to suggest, as this commentary did, that complexity of the tax code is to blame for the tax woes of Geitner and Daschle is highly misleading. Both Geitner and Daschle ran into problems that have nothing to do with the complexity of the tax code. Geitner was self-employed, and failed to pay the employer portion of his payroll taxes, even though he had a) received extra compensation to cover this amount and b) had signed a form from the IMF acknowledging his obligation to pay the employer portion. Daschle ran afoul for not reporting the car/driver he had received as income. Neither of these are problems of tax loopholes. Both are examples of getting too cute by half and not reporting all of your income. Your commentator knows better.
I've been harping about tax simplification for years. I wrote to my congress critters and asked them how many pages of tax code they were responsible for repealing. No answers. With a tax code of 10,000+ pages that no CPAs even understand, our taxes are just a scam. Every exemption, deduction, special tax case, exception or special form allows someone to NOT pay their share. And it generally isn't the average taxpayer. We should be beyond angry.
With regards to income, if I can buy a loaf of bread with the dollar in my hand, it is income, be it wage, interest, dividends or capital gains. We should apply that bread test universally and impose the same tax rates. Wage income is discriminated against in the current system. That means most Americans are in the back of the bus. I don't understand how this baloney got sold to so many people.
Chris, you hit the nail on the head, but not hard enough!
An excellent tax simplification proposal in Congress, HR25 the Fair Tax, will replace all federal income, payroll and business taxes with a simple retail sales tax plus an electronic monthly rebate so that nobody pays taxes on spending up to the official poverty level. This sales tax is progressive. See www.fairtax.org for details.
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