Tax Reform? Dream On

Let's face it: When it comes to true income-tax reform, Congress still prefers the devil it knows.

There are a lot of tasks I'd rather do myself than pay someone to do for me, but preparing my tax return isn't one of them. I'm among the estimated 60% of taxpayers who use a professional. It's not that the return my wife and I file is complex -- no exotic tax shelters, rental property or day trading. But given that the IRS's own hotline provides incorrect information about half the time, I'll leave the task to my savvy CPA.

Like millions of Americans, I yearn for genuine tax simplification, and I'm not fussy about what form it takes. Any of the radical reform plans would be better than our present Rube Goldberg contraption -- some 60,000 pages of arcane code, regulations and IRS rulings that distort our economy, penalize saving and unfairly reward special interests.

1040 on a postcard How about one low-rate tax on all income, with absolutely no deductions? No write-offs for mortgage interest, charitable donations, state and local taxes, or anything else. Yes, I could live with a flat tax, and we really could file our return on a postcard.

Or how about a national sales tax, levied only on consumption, rather than on earnings and investment income? I like this concept even better. At some rate to be determined (probably pretty hefty), it could replace all federal taxes on income, asset gains and estates. It could even replace the regressive payroll taxes that fund social security and medicare -- taxes that, for most low- and middle-income earners, exceed their income-tax bill.

A federal retail sales tax would be easier to administer than a value-added tax, which is levied at all stages in the production-and-distribution chain, because a sales tax could be collected by the states and forwarded to Washington. Poor people would get all their sales taxes rebated. Big-spending rich people would pay a bundle in sales tax, and super-savers at all income levels would pay relatively little. America's woefully low savings rate would soar, lessening U.S. dependence on foreign capital. (For more about a national sales tax, see www.fairtax.org.)

Supporters of tax simplification assure us that their plans would be "revenue neutral" -- that is, they'd generate the same amount of money as the present tax code.

But I wouldn't mind paying even a somewhat higher federal tax bill than I do now in exchange for true simplification. I would feel better knowing that, with the demise of countless tax breaks for favored individuals and industries, everyone would be paying his or her fair share.

Realistically, what are the odds that these plans will be enacted? Sadly, slim to none.

There were hopes that President Bush's bipartisan Advisory Panel on Federal Tax Reform might endorse a truly bold plan. Instead, the panel proposed reducing the number of tax brackets, lowering the top marginal rate to 30% or 33% from 35%, ceasing the taxation of dividends, and trimming the top rate on capital gains (but only on stocks) from 15% to about 8%. Abolition of the hated alternative minimum tax would be funded by trimming the mortgage-interest deduction, limiting the exclusion for employer-paid health insurance, and ending the deduction for state and local taxes.

It's not a bad plan, but Congress probably won't go along with even these modest reforms, given the powerful lobbies that defend every current deduction.

Don't hold your breath True tax simplification will remain an elusive dream. Congress will say it's too risky to gamble on a flat tax or national sales tax, given the unknown effects they might have on an economy that is addicted to the countless stimuli in the present tax code.

Let's face it: When it comes to true income-tax reform, Congress still prefers the devil it knows to an unpredictable devil it dares not imagine.

Columnist Knight Kiplinger is editor in chief of Kiplinger's Personal Finance and of The Kiplinger Letter and Kiplinger.com.

Tax protestors usually end up in jail. I think Women's suffrage was waged under entirely dofferent circumstances. Women were WILLING to protest. Tax protestors usually end up in jail. Women were backed by a 'modern' European movement in Women's rights. American taxpayers see Ireland and Russia with simplified tax structure and a few others but those economies are still tiny. Demographics will eventually kill the US Tax monster, that would be about 15 years off.

Tax evaders not protesters end up in jail. Fair Tax supporters do not advocate tax evasion. Protesting by itself does not result in passing an amendment. Women were much more organized then creating a few protests. No tax structure is as simplified as the Fair Tax. Regardless of that fact, tax structures in foreign countries is irrelevant. The last thing we should do is follow other countries, especially Europe. They use a VAT tax structure and there is nothing about a VAT. Our founding fathers left Europe because they realized those governments are a debacle. We need to take the lead.

I know I know but you might be interested to learn that the IRS looks at Tax Evaders and Tax Protestors as cut from the same cloth.

Fair Tax enthusiasts are viewed as whackjob dreamers.

Like I said it will be demographics that compel changes.

I already see some rumblings of a backlash against government largesse. But until it is articulated in a way that people can vote on it, it will mean nothing.

Freepers here know well that the present system is following the old Roman paradigm of 'Bread and Circuses' to keep the masses mollified.

In today's world 'Bread and Circuses' takes the form of 'Pizza and Football'. Pizza and Football will suppress any real zeal for anything like a Fair Tax.

That said, I have reviewed both Consumption Tax and Flat Tax and without doubt the Consumption Tax wins the debate hands down. But it is a debate about an issue that is moot.

So you think the Seahawks will take the SuperBowl?

http://madpizza.com/menu.html

know I know but you might be interested to learn that the IRS looks at Tax Evaders and Tax Protestors as cut from the same cloth. Fair Tax enthusiasts are viewed as whackjob dreamers. Like I said it will be demographics that compel changes. I already see some rumblings of a backlash against government largesse. But until it is articulated in a way that people can vote on it, it will mean nothing. Freepers here know well that the present system is following the old Roman paradigm of 'Bread and Circuses' to keep the masses mollified. In today's world 'Bread and Circuses' takes the form of 'Pizza and Football'. Pizza and Football will suppress any real zeal for anything like a Fair Tax. That said, I have reviewed both Consumption Tax and Flat Tax and without doubt the Consumption Tax wins the debate hands down. But it is a debate about an issue that is moot. Fair Tax enthusiasts are viewed as whackjob dreamers.

Explain to me how "whackjob dreamers" such as myself, are able to have both the House and Senate consider the Fair Tax Act (HR25 and S25 respectively). People are letting their politicians know they are fed up with the current tax code in many ways you are obviously not aware. I can't speak for all Freepers because I haven't polled all of them and neither have you so you can't also speak on their behalf. The only people who are satisfied with the status quo are those with a defeatist attitude. My experience tells me more people are not satisfied with their highly taxed Pizza.

Mike Holmgren doesn't do well in the playoffs, the Patriots are coming on strong and Indianapolis will bounce back. My guess is an AFC team will win it all.

I can't explain how a 'whackjob dreamer' can have anyone consider the Fair Tax because I am a whackjob dreamer myself (according to those that think I am whacked for getting high on Fair Tax fantasy).

Think you have to ask a non-whacked (or is that whacky?) non-dreamer why they consider us whacked for thinking of a fair or fairer tax.

Ditto on the Patriots. Don't think Seahawks have enough killer instinct to take it all the way.

Yep. Too many sheeple dumbed-down over their precious mortgage deductions or their magical "refund" they pay H & R Block hundreds of dollars to get back. Fricking idiots....people need to understand just how bad the tax code is killing America. Wonder why jobs are going overseas? Factories are closing up? Cities are crumbling? The byzantine income tax code is mostly responsible for all of America's problems, including crime.

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