Forms Tightrope Walking

[Nashville]

Tax Practitioners (i.e. "we") are being placed in an all-too familiar position as 2012 speeds along to its December finish.

What's going to happen to tax attributes for 2012? This year's witches brew has its usual spectrum of ingredients, including but not limited to:

* the AMT.
** Reversal of the "Bush Tax Cuts"
*** Reversal of "Bush Tax Cuts" but only for high income individuals.
**** possible reversals or delays in new Obamacare taxes. This doesn't so much affect 2012 as it will
affect changes effective January 1.

There may be other lesser issues, such as the seemingly eternal tuition exemption and residential energy
credits in the lurch. One year they actually allowed residential energy credits to expire whether they intended
to or not.

As bad as this sounds for us, let's all pretend we were working for the IRS and had to design tax forms. People will want to rush down to their Fast Tax place January 15 and begin e-filing as soon as it is available. One year the IRS actually did put a moratorium on e-filing itemized deductions and claimed they couldn't program because of congress waiting so long (although nothing congress help up actually affected itemized deductions).

Do we see any of the following situations on the horizon?
a) Another moratorium in e-filing because of last-minute changes
b) Unavailability of certain forms (this happened to form 3468 back in the 1980s)
c) Hasty design of tax forms and creation of errors in information flow appertaining thereunto

One thing is for sure - it apparently doesn't bother congress to delay on the issues every year until the 11th hour. Doesn't matter what gets messed up as long as they retain the right to kick the can down the street.

[DaveO]

I’m to the point that I’m ready to say, “Let the tax increases and spending cuts come”. Perhaps then the wailing and gnashing of teeth would reach such a crescendo that our congress critters would finally see it’s time for a through and comprehensive over haul of the system. I have long believed that an ideal tax system should have these five traits.

1. Its singular function is to collect revenue sufficient for the constitutional functions of a limited government.
2. It should be grounded in common law and easily understood and complied with by the average person.
3. It should not discriminate or favor one group of tax payers over another.
4. It should not materially or adversely affect trade, commerce or the free exchange of goods or services.
5. Its application must be fair and rates should be low enough as to make evasion less appealing than compliance.

Our current system and in truth most state and local tax systems fail these tests miserably. I don’t think the so called fair tax or a flat tax would work although a much less progressive system that the one we currently have would be desirable. Prior to the civil war the Federal government made do with excise taxes. If they wanted to go to war they had to raise the money to do so. Since the passage of the 16th amendment, the formation of the Federal Reserve and the advent of fractional banking the amount of our GDP consumed by the Federal government has grown rapidly. Nothing short of a top down overhaul will be sufficient to restore fairness and balance to the system.

It’s also important that all share in the cost of government. Over the last 20 years we have seen the cost of the federal government borne by an ever shrinking group of taxpayers. Thinkers over the years such as Franklin, Jefferson, Hamilton and even radicals like Spooner warned about the dangers of turning government over to the hands of the wealthy. We have seen the “Government of the People, by the People and for the People” become “Government of the Few, by the Few and for the Few”.

[David1980]

Over the last 20 years we have seen the cost of the federal government borne by an ever shrinking group of taxpayers. Thinkers over the years such as Franklin, Jefferson, Hamilton and even radicals like Spooner warned about the dangers of turning government over to the hands of the wealthy. We have seen the “Government of the People, by the People and for the People” become “Government of the Few, by the Few and for the Few”.

The cost of the government is borne by an ever shrinking group of taxpayers because the percentage of income that group of taxpayers receives is ever increasing. I don't think it's a problem in tax rates unless perhaps the tax rates are too low on that group of taxpayers. Spread income out more and taxes will be spread out more as well. But really, it's the tax rates that matter, not the percentage of total taxes paid. Unless we want to argue for a system that charges a fixed dollar tax per person instead of an income tax and that doesn't seem likely.

Thankfully the amount of taxes one pays is not tied to the value of one's vote in elections. Government isn't ruled based on percentage of taxes paid.

[Gary2]

One year the IRS actually did put a moratorium on e-filing itemized deductions and claimed they couldn't program because of congress waiting so long (although nothing congress help up actually affected itemized deductions).

I remember that, a few years ago. My vague recollection is that Congress held up the issue of whether sales tax could be deducted in lieu of state income tax. For some reason, the notion that there was no reason to hold up the Sch. A was widespread, but I'm pretty sure it was wrong, and the moratorium was legitimate.

[JohnH]

Maybe in 2013 we will be filing extensions in January as a protective measure

[joanmcq]

Gary's right, the holdup was legitimate for Sch. A. There were a few other forms that had to be redone at the last minute, because the education credits were also renewed at the last minute, as were other 'Bush' cuts/credits.

One year during the Bush sunset/don't sunset last minute crap, the changes were so last minute, lines on the 1040 did double duty-do you remember using the DPAD line for the tuition deduction, for example? There were at least 3 lines in the adjustments to income section that were used for two different items.

This crap has been going on ever since the Bush tax cuts were enacted, since all of them had sunset provisions so the effect on the deficit/debt would be concealed, per the GAO analysis of the cuts at the time. The GAO also predicted that the sunset provisions would be extended, because once a temporary tax cut/credit comes into existence, any attempt to actually let the sunset occur will be met with howls of 'tax increase!', and hence not be allowed to sunset after all.

The GAO was quite prophetic in that regards.

[JohnH]

Isn't the correct term the "Bush/Obama" tax cuts?
After all, both presidents saw the wisdom of signing off on them once Congress did its duty.