Subject: Tax Reform Comment: Revising the Tax System The current income tax structure does need to be simplified so that • the rich pay their fair share by increasing their tax rates (in 1945 the maximum tax rate was 94%, in 1973 it was 70%, while today it is 40% and the tax rate on dividends is 15%), • the poor to lower middle class can file their own tax returns by eliminating credits and reducing the tax rates, and • the corporate loopholes are substantially diminished so that corporations are carrying the same percentage of the total U.S. tax burden as they did prior to 1976. First, and this is from a CPA and an ex-IRS agent, you need to eliminate the Social Security tax gap on “S” corporations where the “S” corporate profits that are from someone who works in the business are taxed for Social Security and Medicare purposes. This would cause the taxation of “S” corporation on self-employment income to be the same as partnerships and would substantially increase the SS tax collections. Second, the IRS needs to collect the money on non-filers. A week does not go by that an individual or a corporation who has not filed for three to fifteen years comes into my office to file their past due tax returns. Two weeks ago an individual who has not filed for three years came into my office; for 2002, their income on their unfilled tax return was over $2,000,000. The first step I take, as I did in the $2,000,000 case, is to obtain their income records from the IRS. This person, as with most of the others, had never received a notice from the IRS for their past due returns or past due taxes. All the IRS has to do is to computer generate a tax return for these people and send them a bill to initiate voluntary compliance—they already do that in some cases. Can you imagine a credit card company deciding not to bill the card holder? Congress needs to step in and clean up the IRS computer system just enough to send out these letters—for most non-filers that will be enough. No matter what tax structure you have, there are going to be non-filers. Even if it is a sales tax structure, a portion of the collectors of the tax will not pay it in. Therefore, while I do agree that the current system should be simplified by eliminating unnecessary credits and deductions and rate changes to make the law revenue neutral, the real problem is one of tax collections and this problem is caused by the IRS computers. This problem can be easily and inexpensively corrected with good usage of computers—all the information is already available in the IRS databanks. Tax collections of most non-filers under an income tax structure where income documents are created and reported to the IRS are easy to locate and collect. Tax collections of ALL non-filers under a sales tax structure where income documents are NOT created and NOT reported to the IRS are hard to locate and collect since you will not know who they are. Therefore, if you want to INCREASE collections and INCREASE compliance, I would install a SIMPLIFIED INCOME TAX structure; if you want to DECREASE collections and DECREASE non-compliance, I would install a SALES TAX structure. Hans Kasper, MS-CPA 22118 – 20th Ave SE #122 Bothell WA 98021 hkasper@hkmscpa.com 425-485-7853 |