Subject: Hated Provisions of Tax Code Comment: 1. Under the table income. As a small landlord, I often have prospective new residents applying for an apartment who claim to receive most of their income in the form of “tips” or who are “independent contractors”. To date, in the 30 years that I have been a small landlord, I have yet to have any of these applicants willing to produce evidence of their claimed income – no tax return, no bank deposit slips, and no copies of estimated tax payments. It is abundantly clear that, due to the design of our tax code, almost everyone who is able to cheat – does so! 2. Multiple Prices for Same Service. Similarly, for many of the services for which I contract – there are two prices. For example, I recently contracted to have an abandoned buried fuel oil tank removed. The price was $2000 if paid by check, and $1,700 if paid in cash! 3. Tax on recaptured depreciation. It is unfair that the tax code has a tax [25%] on recaptured real property depreciation. During the first ten years or so of owning a rental property there is often little or no income “protected” by depreciation and mandatory depreciation often does not provide any tax benefits. Taxation of recaptured mandatory depreciation is unfair unless there were tax benefits previously produced by the depreciation. 4. Inflation Tax. It is unfair to tax “inflation” at any tax rate – even the current 15% long-term capital gain rate is unfair if the “gain” is due to inflation (which is normally the case for residential rental real estate that is held for the long term.) 5. Tax Deductions. I believe that every personal tax deduction is unfair. The successful hard working high income unmarried childless mobile non-religious healthy renter is severely and unfairly penalized because he/she pays substantially higher taxes due to the tax code’s subsidies of those who elect to donate, elect to own a home and pay mortgage interest and property taxes, choose to have large numbers of children, choose to get married, choose to get divorced and pay alimony, choose to send their children to college, are ill, to those who establish tax free retirement, educational, medical, and other special use savings accounts, and those who choose to purchase electric or hybrid cars or low emission vehicles. 6. Varying standard deductions. The standard deduction should not shrink as a function of divorce or increasing taxpayer income, and should not increase in the event of marriage or declining income. 7. Differing tax treatments as a function of source of income. It is unfair that capital gain income is taxed differently than interest income, or that overseas-earned income is taxed less (sometimes tax free) than local earned income, or that some dividend income is taxed differently than royalty income and licensing income. If there is an income tax, all income should be taxed exactly the same (except income due to inflation). 8. Differing tax treatments as a function of domicile. It is unfair that a person who lives in Nevada or Alaska (which have no state income tax and thus no state income tax deductions on their federal returns) must pay higher federal taxes so that the heavily taxed residents of Connecticut and New York and California can enjoy a reduction of their federal tax obligations. 9. Tax Favoritism for some Americans. It is my understanding that citizens who are identified as a member of a recognized Indian Tribe are subject to different income tax laws and are granted certain tax preferences not available to others. I believe that all citizens, including Native Americans, should be treated uniformly in the tax code. 10. The death tax – which will vanish for just one year (2010) – will be an especially interesting year for decision-making by senior citizens who are ill and thus may be able to choose the year of their demise. I predict that many moderately wealthy senior citizens may choose to meet their demise in 2010 due to the tax code! Clearly, the death tax distorts this most important of personal decisions. The death tax is evil, unfair (because the assets have been previously taxed), confiscatory (because of the high rate), and not uniformly applied (because of various trusts, foundations, etc.). It is also a waste of resources because of the attorneys, trusts, insurance, foundation, and management efforts needed to avoid or mitigate the death tax. 11. Progressive tax rates - The progressive nature of the current tax rates creates an unfair advantage for profitable businesses in comparison to their less profitable competition. For example, if an individual owns a business, and the individual is in a 35% federal and 10% state tax rate, labor for the successful business automatically enjoys a 45% discount (in the form of dededuction from income) than does its less profitable competition! 12. Home ownership – the current tax code provides that profit ($500,000 max) from the sale of a house is tax free, taxes on home ownership are deductible, and the interest to purchase a house is deductible. What a fabulous deal compared with income from manual labor, the stock market, savings accounts, bonds, dividends, royalties, licensing fees, or any other source of income! It is the best possible investment. By being the best, it means that everyone who is able to do so has already purchased a house, often far more house than they need or can afford – just to enjoy the tax benefits. And, the consequence is that, for a large number of Americans, house costs are now too expensive when compared with their income. I believe that the current absurdly high “bubble” prices of homes is directly caused by the tax code. I also believe that high house prices often cause both parents to work (so that they can purchase the expensive house), and when both parents are working the quality of child rearing is low, and that low quality child rearing is causing significant societal problems for our country. 13. If there is going to be an income tax, eliminate all deductions except for costs necessary to produce income. 13. Reduce substantiating documentation and record keeping requirements. 14. Treat all income from all sources in the same manner (except income due to inflation – which should not be taxed.) 15. Have a single tax rate for all residents. 16. Adopt a system that does not require a computer to determine winners and losers. 17. Adopt a system that is not based on fear of the IRS, and does not encourage tax cheating. |