Back onto the subject of the US federal tax code.
As I mentioned previously, in 2005, the Bush Administration attempted something positive by creating the President’s Advisory Panel on Federal Tax Reform. A great idea and a step in the right direction. Here are excerpts from a list the panel developed describing in general terms the present inadequacies and complexities of the tax code at that time:
*Tax provisions favoring one activity over another or providing targeted tax benefits to a limited number of taxpayers create complexity and instability.
*The current tax system distorts the economic decisions of families and businesses.
*The complexity of our tax code breeds a perception of unfairness and creates opportunities for manipulation and the rules to reduce tax. The profound lack of transparency means that individuals and businesses cannot easily understand their own tax obligations or be confident that others are paying their fair share.
*The tax system is both unstable and unpredictable. Frequent changes in the tax code, which often add to or undo previous policies, as well as the enactment of temporary provisions, result in uncertainty for businesses and families.
*The objectives of simplicity, fairness, and economic growth are interrelated and, at times, may be at odds with each other. Policymakers routinely make choices among these competing objectives, and, in the end, simplification is almost always sacrificed. Although these objectives are often in tension, meaningful reform can deliver a system that is simpler, fairer, and more growth-oriented than our existing code.
*We have lost sight of the fact that the fundamental purpose of our tax system is to raise revenues to fund government.
As far as I know, and certainly based on what I have seen on the IRS website and from my own federal taxes, little if any progress has been made towards reform. And this reform report was issued several years ago. No doubt that millions of taxpayer dollars were spent in the production of this very enlightening and telling report, and we can bet little or no action was taken from it. Typical government waste and inaction.
But everyone in Washington, including our President, knows the tax code is a real problem that requires dealing with. Here’s a February 2011 quote from President Obama on the subject: “Cutting annual spending alone won’t be enough to meet our long-term fiscal challenges… If you’re really serious about the deficit – not just spending, but you’re serious about the deficit overall – then part of what you have to look at is unjustifiable spending through the tax code, through tax breaks that do not make us more competitive, do not create jobs here in the United States of America.”
Talk is cheap, of course, as it is with most politicians. We’ll see whether the President has the fortitude to really take the issue seriously and try to push something through Congress.
Using another country’s system as an example, in Japan, except for those self-employed, most taxpayers are not even required to file a tax return. They submit a few documents to their employers, who do some simple calculations comprising one or two pages and then submit the information to the tax authority. Any refund or additional tax is adjusted in the employee’s December pay. A person can submit documents to receive some tax deductions on a few items such as charitable contributions or life-insurance premiums, but that’s about the extent of it.
Basically, most Japanese taxpayers are in the same boat and receive almost the exact same tax treatment, regardless of individual circumstances other than level of income. Dividend and interest income and capital gains are taxed and paid at the source at the same rate for everyone, so these don’t even come into play at the time of year-end tax filing.
As far as I can tell, there are few special interests at work when it comes to Japanese personal income taxes. The system seems to me, although I am not an expert on the subject and could be incorrect, to be a model of efficiency and fairness and resources that are not lost. What a concept!
I am certain that the majority of Americans would more than welcome a simpler tax code. But I seriously doubt any meaningful reform will ever take place. After all, it’s not about what the American people want and desperately need in this case; it’s about Congress and the multitude of special interests for which they ostensibly work.
Let me give you the perfect tax–related example of the incompetence of our elected friends in the legislative branch of our federal government.
Did you know that in 2010 there was effectively no federal inheritance tax (aka the “death tax”) because all inheritances could be passed tax-free during that year? That’s right – the tax rate was 0%! In 2011, an actual exemption amount, of $5 million, was reinstated with a top tax rate of 35% on the remainder. Where federal inheritance taxes will go from here is anyone’s guess, making it difficult or impossible for anyone to plan properly since no one knows what the future holds.
Going back to 2010, it was a very good year for your benefactor to die if you were expecting a sizeable inheritance. Doesn’t it seem insane that death should be free one day (December 31) and possibly cost benefactors a bundle the next (January 1)? But this is an example of the kind of lame-brain ideas that our Congress and, big surprise, the Bush Administration conjured up.
The inheritance tax rate had been coming down for several years until it has reached the effective 2010 rate of 0%. I don’t know all the details of the logic behind steadily increasing an exemption amount and reducing a tax rate over several years and then changing everything again at the stroke of a clock. I don’t need to know because what I do know is that it was the result of a government action, or inaction, which is explanation enough.
This entire scenario represents not only the questionable behavior of those representing us in government but also the unfairness of our tax system. The inheritance tax itself exemplifies how our government uses every possible means to unfairly rob us of our hard-earned dollars. Certainly, I am in no way against taxes in general, but I am certainly against them when they are blatantly unfair.
Proponents of the death tax would say it is fair because the benefactors didn’t earn the money so why should they get to receive it free of tax. Well, using the same logic, the government didn’t earn the money either or have any connection to it whatsoever, so why should they get a slice of the pie?
Most of the money and other types of assets passed on during inheritance have already been taxed. If the money were earned, it was taxed at the federal, state, and local levels. If it were an investment, it was taxed on its growth when it was cashed. If it were a house or some other type of real property, it was taxed year after year through property taxes. You get the point.
A lot of countries in the world, including one such as the socialist, tax-hungry state of Sweden, have done away with inheritance taxes, basically because they are considered grossly unfair. Those countries are all staying in business as far as I know.
why i left america 