The Tax Code. What would you do?

[Gary2]

Since capital gains are partly a tax on inflation, I would index the basis of capital assets to an inflation factor for the year of acquisition.

Would this be in lieu of special capital gains tax rates (just as you suggested getting rid of the special qualified dividend tax rate)?

If there was still a graduated scale of tax percentages, I would split MFJ AGI 50/50 and calculate the tax that amount, then double it. That would keep the tax bracket down.

I recently came across this TaxProf blog entry, and particularly the linked paper. Regardless of where anyone stands on the issues related to MFJ taxes, the paper gives some good background for understanding the history and trade-offs around the MFJ tax brackets. Did you know, for example, that at one point in time a number of states enacted community property laws solely to allow their citizens to exploit the federal tax code at the time?

Any welfare program would be totally separate from the tax code. Instead of an EIC there might be some sort of public service employment for those able to work. Welfare should not be a career. It should be a temporary thing.

Also at the same blog is an entry "61% of Recipients Receive EITC for Two Years or Less." I haven't read this one yet, so I can't comment on how well it addresses your point.

I would cut all congressional pensions and impose term limits which eliminate career politicians.

This is outside the realm of the tax code. I've always viewed term limits as an intrusion on the people's ability to elect the representative they consider best. On the other hand, it's within the domain of the tax code to suggest removing all tax exemptions for campaigns and campaign finance committees. Instead, treat campaign expenses as job hunting expenses for the candidate, and the funds being raised as either taxable income to the candidate or subject to gift taxation (depending on the nature of the income).

[joanmcq]

Um, why replace SE tax with a 401(k)? I can (and do) have a solo K plan that I pay into and get to deduct along with the SE that puts me into the social security system. any SE person can have a k or a SEP and stash large amounts into it. I don't want to be frozen out of whatever bit of SS I get which will be the only 'pension' type of payment I get. And dammit, I want my Medicare. I don't know what I'm going to do once my COBRA is up. Take the Intuit Tax Pro Advisor job just to get health care? The stress ain't worth it.

I would let all the supposed sunsetting provisions of the Bush cuts sunset, and stop all of these 'temporary' tweaks that simply confuse and complicate things every year.

Raise the upper tax brackets and adjust AMT so it hits the brackets it was designed to hit. In other words, raise the exemption level so that it is inflation adjusted from 1969 levels to 2012 and keep it adjusted.

Eliminate EIC except to the point where it refunds payroll taxes for the poor, as it was originally designed to do. Perhaps raise the income limits if you have kids, but not make it more than your payroll taxes.

Make the biz R&D credit permanent. We need R&D, and it takes time to do proper research. How can a biz plan for research into new products taxwise if the credit is not certain?

Do away with DOMA. This is tax; ****, my biz might be cut in half, but there is no justice in what my clients have to go through even for what should be a simple return.

Do away with clergy housing allowances. I mean, does any church actually have a parsonage anymore? Why should clergy get tax free housing? and while we're at it, do away with the whole 'dual status' thing. What was the purpose of that anyways? How many clergy actually have a moral objection to social insurance?

Just a few late night thoughts. If I was High Grand Poobah of All Things Tax, I'm sure I'd do a lot more.

[Gary2]

Raise the upper tax brackets and adjust AMT so it hits the brackets it was designed to hit. In other words, raise the exemption level so that it is inflation adjusted from 1969 levels to 2012 and keep it adjusted.

I've said before that we could simplify things by eliminating the primary tax system and keeping just the AMT, with some adjustments to the numbers to keep it revenue neutral and inflation adjusted. AMT isn't complicated, it's the combination of two systems that makes things complex.

Eliminate EIC except to the point where it refunds payroll taxes for the poor, as it was originally designed to do. Perhaps raise the income limits if you have kids, but not make it more than your payroll taxes.

A simpler approach, which would avoid all the dependent-shuffling, would be to just exclude the first $nK from FICA.

Do away with DOMA. This is tax; ****, my biz might be cut in half, but there is no justice in what my clients have to go through even for what should be a simple return.

Not to mention the extra taxes on imputed income for things like health insurance.

Do away with clergy housing allowances. I mean, does any church actually have a parsonage anymore?

I won't address the tax issues, but my synagogue only got rid of its "parsonage" about 8-10 years ago, when the rabbi emeritus and his wife moved out. From what I can tell just from driving by, many of the older churches here in New England, especially Catholic churches, have attached parsonages still used as such, and not easily sold off separately or put to other uses.

[taxxcpa]

Also at the same blog is an entry "61% of Recipients Receive EITC for Two Years or Less." I haven't read this one yet, so I can't comment on how well it addresses your point.


.

I find that hard to believe, but it does raise a thought: Why not limit the EITC to two years?
That would not affect the alleged 61% who get it for two years or less.
My main objection to the EIC is that it can go on for twenty years for some people. As a temporary helping hand, it may be justifiable, but I can't see letting anyone make a career out of getting government handouts.

[joanmcq]

Catholic churches 'parsonages' are a bit different, more like dorms for the priests who tend to the church (at least at my church).

Exempting the first $$ from payroll would also exempt everyone else. The original EIC was to equitize the fact that very low income workers don't pay income tax, but pay a large portion of their income in payroll taxes. If you get an EIC return for someone without dependents, you'll see clearly how it worked. The clearest example is an SE return where the single person makes about 6K. They owe no income tax of course, but do owe SE. The EIC kicks in and puts the net tax due to zero. A wage earner will get a refund of FICA. You rarely see these though, since you have to be over age 24 to qualify (so students generally don't qualify), and it phases out around 12K of income for 2010.

[JoshinNC]

I have some ideas

3 tax brackets (10%, 15%, 25%)

Reduce the LTCG rate to flat 10% on assets held 1-5 years, 0% on assets held greater than 5 years for all taxpayers, regardless of bracket.

Make all distributions from retirement accounts tax free after 5 years of having the account and eliminate any cap on amounts that can be contributed to retirement accounts.

Eliminate ALL itemized deductions and go to a flat standard deduction for each person on a tax return (combined personal exemption and standard deduction) of say $10k per person.

Eliminate all refundable credits, as well as the EITC and the CTC.

Flat 10% corporate tax rate and elimination of pass through entities.