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Fixing The Tax Code

Updated on November 21, 2016

Introduction

The US tax code is currently over 70,000 pages. It is time for major reform. It needs to be simplified and made fairer.

-August 2015

Face of IRS

What Is The Purpose of The Tax Code?

First, what is the purpose of an income tax? It is to collect funds necessary to run government functions including national defense and building infrastructure and maintain law and order etc.

The revenue collected benefits all of us. As citizens, we want to have a well funded government. The issue becomes what is the best way to collect these revenue. The IRS was established to do this. It is suppose to be an independent agency without the political influences of any particular party or elected officials. As we have experienced in recent years, that is not always the case.

In addition, the tax code has been perverted by lobbyists and politicians who wants to use it as a mean of social engineering and crony capitalism.

What Is the Best Way?

Suppose you were asked to design a system to collect money from the American public from scratch. What should be the goal and what would it look like?

Goals:

  • It must raise the amount needed to run government.
  • it should be fair. This is a loaded word for some. What is fair for one may not be for another.
  • It should be as simple as possible and easily implemented and easily for the public to comply.
  • It should be easily enforceable.
  • It should be independent and not influenced by any political parties in power.

Some Other Considerations

  • Tax exemptions such as mortgage and interests...
  • Income from Capital Gains
  • Estate Tax
  • Exempt organizations such as charities and religious organizations
  • Tax on Corporations and income from foreign operations
  • Is FICA considered a tax?

Some Various Options...

  • Progressive Tax System (the rich pay a higher percent)
  • Flat Tax (everyone pay a flat percent equally)
  • Sales Tax or FairTax (Consumption tax for example 23% proposed to replace current income and FICA combined)
  • A combination of the above
  • Do nothing (leave it as is)

Sample Flat Tax Form

Summary

The tax code is too large and too complicated and in my opinion it was done by design. If the intent is to create a huge bureaucracy so that tax liabilities can be challenged in courts and allow some to gain advantage over others through loopholes, the current system is perfect. It is not designed to be easy and fair. Of course, any new proposal will be revenue neutral compared to current law. The same amount would be raised, just a different distribution and hopefully a lot simpler and will put tax accountants out of business.

Comments

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    • Earl Owens profile image

      Earl Owens 

      2 years ago from USA

      It is simple.... Scrap the whole damn thing and abolish the IRS. The government existed just fine before the IRS was created in 1913.

      Taxation is immoral because taxation is theft.

    • bradmasterOCcal profile image

      bradmasterOCcal 

      3 years ago from Orange County California

      jackelee

      FICA should definitely not be part of the NST/ It is never too late.

    • jackclee lm profile imageAUTHOR

      Jack Lee 

      3 years ago from Yorktown NY

      brad - I agree with your proposal for the most part especially getting rid of the IRS. Combining FICA with the sales tax is a way to appease the low income earners and make it more fair. One of the criticism of any tax reform has always been the argument that FICA is already a tax on the low income folks. Since social security was not set aside for retirement as it was intended but put into the general fund and spent, it might as well be rolled into any new tax proposal. It is too late now to correct a flawed system of social security.

    • bradmasterOCcal profile image

      bradmasterOCcal 

      3 years ago from Orange County California

      jacklee

      Putting a limit on the government is the same topic. Taxes are increased to catch up with government spending. To balance a budget, both the spending and the taxes can be adjusted. At some point, if we don't cut the spending their won't be enough people to tax.

      The federal government is obese, non functional i many areas, and they need to be brought back to a necessary and functioning government. You didn't really comment on the details in my previous comment, but I won't repeat them.

    • jackclee lm profile imageAUTHOR

      Jack Lee 

      3 years ago from Yorktown NY

      bradmasteroccal - That is quite a posting. It may be one of the few comments that are longer than the original hub. I agree with most of your proposals. I just want a tax code system that is simple and easy and cannot be manipulated by the rich and powerful. Putting limit on government spending is another topic. I am for a balanced budget amendment to put some limits on out of control spending. Thanks for your thoughtful input.

    • bradmasterOCcal profile image

      bradmasterOCcal 

      3 years ago from Orange County California

      Jack Lee

      I have to disagree with your premises here.

      The question of money NEEDED to run the government is vague and ambiguous.

      If you look at the history, the government uses the taxes to increase the size and scope of the government.

      There is no cap for the spending of the government and therefore any taxes will not be enough.

      The 16th Amendment got around the restriction of having to apportion the taxes among the states. The US Codes created to make Income Tax the law has also become huge and its changes every year. In addition, in 1986 the Tax Reform Act took away most of the deduction that could be used by the middle and the lower tax brackets, the wage earners.

      What is left can only be used by the wealthy to become and stay wealthy. Even after the economic meltdown in 2008, we have increased the number of new billionaires in the US, as well as doubling the wealth of the top billionaires.

      The income tax system and the Internal Revenue Code is how we have 1% of the wealthiest people acquiring the amount of wealth held by 90% of the taxpayers.

      You talk about running the government, but what has the government accomplished in the last four decades for the taxpayers, and the people of this country? It seems like the size and scope of the government could be heavily pared down without losing any real benefits.

      I favor the National Sales Tax which is the same as most state sales taxes. The mechanism exists and any objections for it have not succeeded in overturning the state sales tax.

      There is no reason to include FICA in the sales tax. First it is not Income Tax to be raised to run the government. It is specially for SS, and Medicare, which would have been better served as a 401K with the employer and employee making the same contributions as they do under the SS.

      The government didn't ensure that the SS trust fund would be invested to provide for the eventual landslide of those retirees. That is why it is going to run dry in twenty years or less. It is like a Ponzi scheme where it needs new blood to pay for the old blood. There just isn't enough new blood.

      So, I am thinking that the tax should be less than 15% and above 10%. The difference of what it brings in and what the government spends should be made up by cutting the government. The taxpayers pay for a very lucrative Federal Employee Retirement System, and a great Federal Employee Healthcare System. In addition, government workers get the most vacation days, sick day, personal days, maternity days, and holidays that most of the people in the private sector. These are not cheap programs and they don't exist for wage earners in the private sector. Start by cutting into these benefits.

      The National Sales Tax system would have to entirely replace the 1040 Income Tax System, including removing the Internal Revenue Code. Then we can severely downsize the Internal Revenue Bureaus. The Sales Taxes only requires auditors, and the states can do most of the work on fraud.

      With the Sales Tax the people of any means can decide how to best spend their money, and this could increase competition for their consumer business by companies that want them to spend money on their products.

      I am against the Flat Tax because it leaves the Internal Revenue Code and the IRS which is the root cause of our tax problems today. The beauty of the Sales Tax is that you don't have to file with the government, and tell them everything that you are doing with your life.

      Yes, the world of the income tax preparation would take a beating, but CPAs should do real auditing work instead of Income Tax.

      People will have to give to charity not because it is a tax deduction but because they want to be charitable.

      The current income tax system, technically violates your right to privacy, and your right against self incrimination and make it criminal to not pay your taxes, when a civil penalty would suffice.

      The Income Tax requires you to provide a lot of time and effort to file the forms, and also to divulge private information. The sales tax just wants the money for the product that you are buying or leasing.

      Remember our first income tax was held unconstitutional, and it was to raise money for the Civil War. Then in 1913 they got that amendment to ignore apportionment. And from then on the income tax increase, and so did the size and scope of the federal government. They had help from the Supreme Court in misinterpreting the Interstate Commerce Clause, to make anything they chose to be a federal case, and enforced under the Supremacy Clause.

      The Income Tax, the Social Security Tax, the Medicare Tax, and the ACA Tax are all bad taxes, and they aren't necessary. An alternative system can be developed to work where these haven't worked.

      The founders of the United States didn't want a strong federal government, and that is why they created the States. The federal government was to moderate the conflicts between the states, and to address us to the rest of the world as the Unites States of America.

      With all those Income Taxes, and other taxes levied by the federal government, our country was left undefended on 911. As they were on 12/7/41. So when you talk about giving the taxes to Needed to run the government, that was one of those critical federal functions, protecting the country.

      Then they give away 1.5 trillion dollars to the same people and companies that caused the economic meltdown in 2008. The banks that were saved by the government then had their executive declare themselves 7 figure bonuses. For what, for bankrupting their company.

      And every time a sitting president and an incumbent i congress goes fundraising and campaigning for their or their parties reelection, they are costing us money. Money we paid in income tax.

      It costs $185,000 an hour just to keep Air Force One in the air, it doesn't go anywhere alone. It has a village, with more vehicles, and Air Force Two as a back up for the president.

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