Subject: Request for Comments #1 Comment: My comments are attached. Sincerely, Jan Larson Cedar Park, Texas The President’s Advisory Panel on Federal Tax Reform Request for Comments #1 Submitted by Jan A. Larson, An Individual 1303 Hunter Ace Way Cedar Park, Texas 78613 Tel. 512-335-2236 Email: janlarson@mail.com February 28, 2005 1. Headaches, unnecessary complexity, and burdens that taxpayers - both individuals and businesses - face because of the existing system. I am a 47-year old practicing engineer, with three college degrees (BS, MS in Electrical Engineering and an MBA) and consider myself proficient in mathematics, household finance, investing and the other aspects of everyday life that are impacted by the Federal tax system. My wife is a practicing dental hygienist and also has a small part-time business as a wedding officiant. We own our home. We do not have any children. We each have IRAs and I have a 401(k) as well as a taxable brokerage account. Our tax situation is likely less complicated than a typical couple in our age bracket. I had always vowed that if I couldn’t complete our tax return myself, honestly and accurately, then there was something seriously, seriously wrong with our tax system. Until 1996, I did just that – collecting receipts, W-2’s, brokerage statements, etc. etc. and filled out the forms by hand every year. Starting in 1996, I found that the time it took to find the correct forms, read the instructions, decipher the instructions, fill out worksheets and do the calculations were taking far too much time out of my life. It was extremely vexing to fill out our tax return only to have one more tax-related document arrive or to discover one more itemized deduction that I had neglected to consider. That year, I started using tax preparation software that made the process easier, but vexing nonetheless. I now spend nearly $40 per year on that software. At one time, I also had a part-time business (officiating high school basketball) that required a Schedule C. The record keeping required to complete my tax return for a business that grossed less than $2000 per year was, in a word, ridiculous. I have absolutely no doubt that if I struggle to complete our relatively easy tax return, it is very, very likely that many Americans have a much greater struggle which undoubtedly produce more errors or they are forced to pay even more than $40 per year to have a professional complete their tax return with no guarantee that it is any more accurate than if they did it themselves. 2. Aspects of the tax system that are unfair. Every exemption, deduction, tax credit and write-off is unfair for the simple reason that some taxpayers get to take advantage while others do not. There is no fundamental reason why non-homeowner taxpayers should subsidize my home. There is no fundamental reason why my wife and I, without children, should subsidize families with children. There is no reason why the fact that I deduct my mortgage interest and property taxes should make me eligible to deduct charitable contributions while non-homeowners cannot. Without having to go any farther than Form 1040, I can see all sorts of ways the tax system is unfair. Some examples: student loan deduction, moving expenses, self-employed health insurance deduction, penalty on early withdrawal of savings, deduction for clean-fuel vehicles, foreign tax credit, credit for child and dependent care expenses, education credits, child tax credit and the list goes on and on and on. As long as every possible societal behavior is rewarded or penalized by the tax code, the tax system cannot be “fair.” 3. Specific examples of how the tax code distorts important business or personal decisions. The most profound and damaging way that the tax code affected my wife and I occurred in 2000 when Lucent Technologies acquired the small company with which I was employed. The stock that I received in that acquisition was worth a considerable amount of money. Due to the nature of the tax treatment of stock acquired via incentive stock options, I decided to hold that Lucent stock until it qualified for long-term capital gains treatment rather than selling immediately and being forced to pay a much larger proportion of the gain due to the treatment as ordinary income. Of course hindsight is 20/20 and I am fully aware that I could have made a different decision, but that stock that was once worth $70 per share, is now worth just more than $3. I can categorically state that had I not faced a significant differential in the tax treatment of that stock at the time that I received it, I would certainly have sold at least some of those shares. 4. Goals that the Panel should try to achieve as it evaluates the existing tax system and recommends options for reform. In my humble opinion, the Panel should produce a recommendation that achieves the following goals: • The tax code must be fair. By that, I mean that there must be no distinction made between taxpayers based on anything other than the basis for determining the amount of tax owed, whether that is income or, in the case of a national sales tax, money spent on retail purchases. Any other distinction is inherently unfair as are exemptions, deductions, credits, etc. as I have previously described. • It must be simple for the taxpayers to comply and should be very difficult to evade or avoid. • It should be conducive to economic growth. It should greatly reduce the drain on the economy caused by both corporate and individual compliance costs. It should be structured to make American products more competitive in overseas markets and make the United States more “tax friendly” for foreign investment. • Finally, and most importantly, it should be transparent so Americans know exactly what they are paying for government. |