Subject: Tax Reform Comment: In general the tax code should have less deductions and lower marginal tax rates. Lower marginal tax rates are important, as people would have less incentive to hide income, seek compensation in the form of tax free fringe benefits, and provide a better incentive for people to work. I wouldn't mind seeing itemized deductions completely abolished, given the fact that most people don't itemize anyway. Given that probably will not occur, one alternative would be to have itemized deductions be consistent with what is allowed under the AMT, and just abolish the AMT. I think the AMT is not needed, especially if we limit itemized deductions. I also believe the present system that impacts upper middle income taxpayers by limiting personal exemptions, child credits, and itemized deductions creates unnecessary complications, and causes taxpayers to be in much higher marginal tax brackets than their stated tax bracket. These are really stealth tax increases, and maybe by eliminating some itemized decutions we can do away with these various phaseouts. I think the present sytem also oversubsidizes Real Estate. While broad home ownership is a noble goal, we don't need to subsidize second homes, or allow interest deductions beyond an average priced home. Capping interest deductions at a $500,000 mortgage on just one home would be appropriate. In addition the present tax code subsidizes borrowing at the expense of savings in an inflationary environment. For example if inflation is 3% and you have a 6% mortgage then only 3% should be tax deductible. Likewise if you are receiving interest income of 6% with 3% inflation, you should only be taxed on 3%. Likewise with regards to capital gains they to should be indexed for inflation. Finally Real Estate Investors get a benefit of a 1031 exchange, which investors in common stocks do not receive, I think the tax code should be consistent in that regard. One relatively minor point could be corrected is to eliminate the extra deduction that seniors receive. This just benefits those seniors who have enough income to pay taxes, while the rest of the working population has to pay slightly higher taxes for this unnecessary subsidy. Another thing that could be done, which really isn't tax reform, but would serve a very useful public purpose would be to allow tax free commuting allowances in urban areas. This would help to reduce traffic congestion, if employers instead of providing free or subsidized parking to employees, allowed employees to receive that money. In that case if the employee had to pay for the full cost of his/her parking instead of having it subsidized there would be less incentive for people to drive to work alone. Another area where reform could be instituted, and is subject to abuses is business deductions. There should be a limit to auto/truck deductions, maybe a set mileage amount may work. I don't believe people should be able to wite-off luxury cars, which they may also be using for personal use. I also think entertainment expenses should not be deductible. Going to a golf course, a sporting event, or a concert is primarily personal consumption, and is a way also to give employees tax free compensation, and seldom serves any true business purpose. To conclude I think if the amount of deductions were lessened then we could have lower marginal tax rates across all income classes and have the AMT eliminated. Lower marginal tax rates would also result in more reported income, better compliance, and with less deductions people of similar incomes would be paying a similar tax. Countries in Eastern Europe, which are just starting to enjoy freedom are going to tax systems that are much simpler than ours with low marginal tax rates. I think we should go the same direction. |