Gov Perry's Flat Tax

[AZ-Tax]

I have yet to read thoroughly but you have the option to prepare your tax return based on the current tax code or pay 20% flat tax on taxable income derived from deducting 1098 int, state & local taxes & Charitable donations. Excluding S-Corp, P'Ship & Sch C businesses, how many clients and prospects are going to call you up and say "will you calculate my tax return both ways and if I will pay lower taxes under the flat tax, do I still need to pay you for I can easily prepare my own taxes on TurboTax".

OR

"Why should I pay you so much when I am better off with the flat tax which required less time".

[JohnH]

I 'd tell them that if thy can calculate it both ways and have full confidence in their result, they don't need me in the first place. But if I'm doing the calculation, then I get paid for my effort. Not unlike the current situation when an itemizer is on the borderline abd we wind up claiming the standard deduction. I still charge them for my time in arriving at the best result.

[erchess]

Amen John

I've been thinking of going to a straight time charge anyway but if the Perry plan passed I'd have absolutely no choice unless my software changed and started supporting forms charges for forms not used on the return. As long as it's just Sch A or not that is in play you can charge almost the Sch A fee for itemized deductions totaling say 75% of enough to make itemizing the better option. So there would be if anything an increase in my per client revenue and I think in my number of clients the first year. The problem I perceive is that as best I understand what I am hearing once you choose an option you are stuck going that option for some unspecified period. So once the election was made, I think a higher percentage than we are experiencing now will choose DIY software and those stuck with the new simpler route would be particularly prone to that choice. On the other hand within a very few years complexities would start to creep in again because Washington is addicted to shaping behavior through the tax code.

I also think that once we explain to people that they are choosing for a long time not just for one year many who are only a little better off the new way will choose the old because people like THEIR deductions and credits.

[JohnH]

I dont much like THEIR deductions and credits, but I sure do like MINE.

[taxxcpa]

Perry plan

The appeal of a flat tax is, in the minds of many, a simplification. However the tax code could have a dozen progressive tax rates and still be simple. It might serve some candidate well to come up with a simplified plan similar to the flat tax without the flatulence.

Just cut all deductions and credits except for a standard deduction and exemptions. This could achieve the result of increasing or decreasing the share paid by the fat cats.

[Jiggers]

The appeal of a flat tax is, in the minds of many, a simplification. However the tax code could have a dozen progressive tax rates and still be simple. It might serve some candidate well to come up with a simplified plan similar to the flat tax without the flatulence.

Just cut all deductions and credits except for a standard deduction and exemptions. This could achieve the result of increasing or decreasing the share paid by the fat cats.

Everyone, including the politicans, believe that everyone receives only W-2's or 1099R's for their income.

They assume that for self-employed Schedule C's and F's. They assume that for rental and royalty owners. They assume that for K-1 entities (1065 & 1120S).

They assume that for those that invest in stocks, bonds, and mutual funds.

They have no clue on what really goes on with income tax returns. About 10% of my returns are 1040A. Most are for kids of my bigger clients.

If they really want to simplify the code:
1. Eliminate the IRS being a welfare agency paying EIC and CTC.
2. Fix depreciation calculations. Regular for Schedule C and E. Different for farmers. AMT calculation for everyone. The deprecation in the early Reagan days was great.
3. Eliminate all itemized deductions. Standard Deduction only. That fixes the mess for deductible and non-deductible mortgage interest, recordkeeping for donations (and would ease the non-profit organizations bookkeeping headaches and need for receipts),
4. Allow 2106 as an AGI deduction, with no 2% cut, but with it being a requirement or the employer.
5. No AMT calculation.
6. No Foreign tax credit or optional deduction.
7. Eliminate the passive activity limitations and mess.
8. Eliminate the education credits, dependent care credits, energy credits, etc.
9. Eliminate the 50% cut for meals.


Just some of the suggestions to simplify things.

But get real, politicians have no clue. And neither do most of my clients.

[taxxcpa]

Good suggestions

Everyone, including the politicans, believe that everyone receives only W-2's or 1099R's for their income.

They assume that for self-employed Schedule C's and F's. They assume that for rental and royalty owners. They assume that for K-1 entities (1065 & 1120S).

They assume that for those that invest in stocks, bonds, and mutual funds.

They have no clue on what really goes on with income tax returns. About 10% of my returns are 1040A. Most are for kids of my bigger clients.

If they really want to simplify the code:
1. Eliminate the IRS being a welfare agency paying EIC and CTC.
2. Fix depreciation calculations. Regular for Schedule C and E. Different for farmers. AMT calculation for everyone. The deprecation in the early Reagan days was great.
3. Eliminate all itemized deductions. Standard Deduction only. That fixes the mess for deductible and non-deductible mortgage interest, recordkeeping for donations (and would ease the non-profit organizations bookkeeping headaches and need for receipts),
4. Allow 2106 as an AGI deduction, with no 2% cut, but with it being a requirement or the employer.
5. No AMT calculation.
6. No Foreign tax credit or optional deduction.
7. Eliminate the passive activity limitations and mess.
8. Eliminate the education credits, dependent care credits, energy credits, etc.
9. Eliminate the 50% cut for meals.


Just some of the suggestions to simplify things.

But get real, politicians have no clue. And neither do most of my clients.

You have covered a lot of the things that should be done to simplify the tax code and make it more equitable. I agree with all of your suggestions.

[okie1tax]

Flat tax

If they can't promise to lower YOUR taxes or give YOU more money, what will the politicians do for votes?

[taxxcpa]

What can they do

If they can't promise to lower YOUR taxes or give YOU more money, what will the politicians do for votes?

Maybe a new way to pander for votes would be to try true tax simplification. The reason so many people are buying into the flat tax is because it is simple rather than the idea that it would be fairer. There is no reason why it can't be very simple even with several tax brackets.

[Bees Knees]

Flat tax ideas never gain support because people like me always point out how they require taxes on lower income earners to be raised, while taxes on upper income earners are lowered. That is the exact opposite of the current "raise taxes on the rich" cry that is becoming more and more popular today.

For example, when you look at the back inside cover of TheTaxBook, you will notice that the top 1% of all taxpayers paid an average tax rate of 23.27%, while the bottom 50% of all taxpayers paid an average tax rate of 2.59%. The average rate for all taxpayers was 12.24%.

Thus, in order for a flat tax to work, the poorest Americans would have to have their taxes raised from 2.59% to 12.24%, while the rich get their taxes cut from 23.27% to 12.24%.

It makes no difference how you do it, whether it is by eliminating tax deductions, or flattening the tax rates, any attempt at a flat tax means the poor get their taxes raised while the rich get their taxes cut.

[Gary2]

....
If they really want to simplify the code:
3. Eliminate all itemized deductions. Standard Deduction only. That fixes the mess for deductible and non-deductible mortgage interest, recordkeeping for donations (and would ease the non-profit organizations bookkeeping headaches and need for receipts),
4. Allow 2106 as an AGI deduction, with no 2% cut, but with it being a requirement or the employer.

This is how complexity sneaks in. First you say eliminate all itemized deductions, then you say to allow 2106 (which is an itemized deduction). You can't have it both ways. Once you permit one, you've opened the door both politically and logically to more than one.

Now I suppose you could phrase it differently, by allowing each income item to be net of expenses. But even there, if you're going to allow employee business expenses, then shouldn't there be investment expenses? Gambling losses? Does hobby income move to a Schedule C? Does that mean a form for each type of income?

[taxea]

I have yet to read thoroughly but you have the option to prepare your tax return based on the current tax code or pay 20% flat tax on taxable income derived from deducting 1098 int, state & local taxes & Charitable donations. Excluding S-Corp, P'Ship & Sch C businesses, how many clients and prospects are going to call you up and say "will you calculate my tax return both ways and if I will pay lower taxes under the flat tax, do I still need to pay you for I can easily prepare my own taxes on TurboTax".

OR

"Why should I pay you so much when I am better off with the flat tax which required less time".

My answer is "you are paying for my expertise, not for the simplicity of the return". Your option is to DIY."
I haven't done the math yet but I suspect the general public will be paying more in taxes with this "flat tax".

[ttbtaxes]

A flat tax is unworkable for all but the simplest of returns. It sounds like it will help to slash the IRS Code and Regulations and make compliance easier. To those who think so I ask:

How do you flat tax:

1) Proceeds from sale of a principal residence?
2) A gift given or received?
3) An exchange otherwise qualifying under the old rules?
4) The sale proceeds of securities?
5) What constitutes a deduction or expense?
6) How is inventory treated? LIFO, FIFO, average cost?
7) Does a charity pay tax on just UBTI or all revenues?
8) Etc, etc, etc, etc, etc..........

If we throw out the unwieldy tax code and replace it with a sales tax or flat tax, or both, then all revenue streams are taxable unless specifically exempt. Once you start to create an exemption for, say, a tax-exempt organization, you must reactivate IRC 501-515. That would start the slippery slope for other code sections related to inventory, cost basis, transfers, exchanges, and on and on and on.

The new "friendlier" and "simple" code would quickly become more recognizable with the existing one.

[Nashville]

Surprise

It makes no difference how you do it, whether it is by eliminating tax deductions, or flattening the tax rates, any attempt at a flat tax means the poor get their taxes raised while the rich get their taxes cut.

Read the above carefully, then tell me why my POOREST clients are the ones who vehemently claim they want a flat tax. My wealthier clients know they would benefit, but understand the complexities of applying a flat tax, and simply don't think it will ever happen.

They are right.

[taxxcpa]

Read the above carefully, then tell me why my POOREST clients are the ones who vehemently claim they want a flat tax. My wealthier clients know they would benefit, but understand the complexities of applying a flat tax, and simply don't think it will ever happen.

They are right.

I think you are right. Often the lower income people who pay little or no tax are so attracted to simplicity that they fall for the flat tax argument.
The flat tax will never be enacted. Some simplification might occur although it seems unlikely.