Yesterday, the 115th Congress convened.The Republicans are in charge of both the House and Senate and there is been a lot of talk about tax reduction and “tax reform”. Does this mean we will get tax simplification? Since President Reagan signed the Internal Revenue Code of 1986, there have been more than 30,000 changes, excluding Obama care. The fact is the Internal Revenue Code is ridiculously complex and far too much time and money spent in our society both by individuals and businesses in complying and planning for our burdensome tax laws.
There definitely will be a push to lower corporate tax rates. This is good but let’s also simplify our business tax structure.
Even more unnecessary and confusing is the personal side of the Internal Revenue Code. For example the alternative minimum tax, designed to force a few wealthy millionaires of the late 1960s to pay tax, has now resulted in more than 1/4 of the middle class paying this burdensome tax. The AMT must go!
There are also complicated and unnecessary rules dealing with real estate. For example there is something known as the “passive activity loss limitation.” This is designed to prevent people from getting deductions for losses in real estate investment against their other income. The amount of time and effort to comply with this, plus the amount of litigation involving real estate deductions is an unnecessary drag upon the economy. This must go.
There is also a lot of talk about fraud and abuse. It is not the big so-called “loopholes” where most of the fraud occurs. Most fraud occurs with the earned income tax credit. This was originally designed as the “negative income tax” in the Nixon administration in order to be an efficient way for distributing welfare type payments from the government. Unfortunately it has become an area of massive abuse. If you don’t believe me, wait until the first days of tax filing this season. You will see people lined up outside the big box tax preparation offices so they can get their “refund” which is actually more money than they paid in for taxes. This must go!
The next time any of our politicians talk about tax reform listen for “simplification.” Simply adjusting tax rates is not enough to have the kind of impact we need to make our economy and lives simpler.