Subject: Simplifation of Taxes
Comment: As an Internal Revenue Agent for the Internal Revenue Service working small businesses, individuals and having prior experience working Taxpayer Service and problem cases simplification is urgently needed.
A few areas to start is to reduce all the credit for children. At this point you have exemptions, child tax credits, child care credits, earned income credit, additional child tax credit and advanced earned income credit. If you child is in college you also have two deductible education credits, a deduction for tuition and fees and other tax defered programs such as the Education Savings Accounts, Education of Savings Bonds, 529 programs, etc.
My suggestions is to allow the exemption, increase it if you have to. Delete all of the others.
Allow one education credit for all situations, and one type of Education Savings program.
Another major problem is the limitations on income. Everything is limited at a different amount. If you are going to allow a deduction, allow it to all, or not at all.
Alternative Minimum Tax and Alternative Minimum Tax Credit. Have you tried to explain that process to someone? Getting rid of the EITC will pay for it.
Getting rid of the EITC and letting the State manage the Welfare Program is the biggest benefit to the federal government. The States are set up to manage the Welfare System, let them. EITC encourages people to only work part time. They get to that majic number for maximum EITC and stop working. Or only work part time, so they can get 40% of their salary back for nothing, they do not see the long term results. EITC only encourages people not to work, not to marry and to have more children than they can afford. It is bad for the economy.
I beleive at this time you may only be looking at the individual income taxes, but if you look at Corporate, bring the rate down to 10%, get rid of the credits, with the exception of the Orphan Drug Credit. Limit the amount of compensation that can be deducted for the Board of Directors and highest Executive Staff (They can pay it, but not deduct it). They Annual Report should be required to have a copy of the 1120 Tax Return attached. Let the Company explain to the Share Holders and the IRS, how they made millions in the Annual Report and had a loss on the Taxes. The Annual report should be attached to the tax return. Simplify, simplify, simplify. The only ones who will loose out are the corporate attorneys and the accountants that help the corporations cheat on their taxes. If the tax rate is relatively small, and loop holes are reduced, it will not be worth their time.
Get rid of all the complicated computations for the Dividends and the Capital Gains. Long Term Capital Gains times 40% equals taxable amount. Done. Same with the Dividends. To encourage savings, just lump the Dividends and Interest together, times 40% and that amount is taxable. Done.
Social Security should be taxed at 50% regardless of income. The Taxpayer paid in 50%, his employer paid in 50%, so 50% should be taxed. This should be on the full amount. Increase the Standard Allowance to keep those with only Social Security from paying taxes.
Get rid of moving expenses.
Make 1 IRS, the Roth is the best, no deduction, earnings are tax free.
Make 1 pension program for the Self-Employed. Now they can do an IRA, Roth IRA, SEP, 401(k) Simple, Keogh, and other qualified plans. Keep the 401(k) Simple to mirror the employer plans and be done with it.
Get rid of the adoption credit. The amount of deduction on this is huge. I can see allowing a credit for special needs children, or hard to place children, but not others. People are on waiting lists for years to get children, there is no need for a tax deduction, they will pay what they have to.
Business Issues -
Simplify the Depreciation rules. Straight line is all you need. The other just make people greedy. They deduct 100% of their $50,000 SUV, then "forget" to report the sale.
Hobby Losses - put the Hobby on the Schedule C, expenses limited to Income. Yes, they get a little more deduction than putting the expenses on the Schedule A, limited to 2%, but will be more willing to report a Hobby Business as a Hobby Business and not just showing a large loss on little income. Simplify.
Day Traders - If someone is buying and selling stocks as a business, they should be subject to Self-Employment Taxes. Not allow all the expenses on the Schedule C, and the gains on Schedule D to avoid the SE Tax. Same with Sale of Business Property. They didn't pay SE Tax on the Depreciation, they should pay it on the gain up to the amount of depreciation.
Hopefully these are items you can think about and include in your studies. If you don't understand what I am talking about, go out and talk to the auditors. The Field Agents can tell you more where the mistakes are made due to ignorance, cheating and confusion than anyone else.
Thank you for your time.