The discussion of the tax code has been front and center especially since the National Taxpayer Advocate, Nina Olson released her annual report to Congress. In it, Olson suggested the need for tax reform and strongly urged lawmakers to take significant steps to simplify the way too complex tax code.
People often ask me what would happen if we just had a flat tax. I decided to answer that question in a recent episode of the national network television show, TaxMan – in my Tax Spotlight. (Below in the video are flat tax points to remember):
Tax Relief from the Tax Code: Everyone Pays the Same Flat Tax Rate
Basically, what I suggest is that everyone is charged a flat tax rate of say, 15% no matter how much income they earn. Under this 15% flat tax there will be no deductions or credits for home mortgage interest, property taxes etc. In my estimation, this alone could help remove major tax issues facing taxpayers and help the government in the following ways:
- Remove much of the financial burden from taxpayers for tax preparation services because the paperwork would be much easier to complete – they could do it themselves.
- Get more people paying into the system thus helping the country get financially back on track.
- Eliminating the nearly 73,000 pages and roughly four million words of the current tax code.
Tax professionals would still have business, but would not have to focus all their time on tax preparation. Reputable tax resolution firms would continue no matter the tax rate because their role in helping struggling taxpayers negotiate a tax settlement with a government agency like the IRS will still be needed.
The sobering statistics provided in the recent national taxpayer advocate report shows that a simplified tax code is necessary. With a flat tax, the following current IRS tax problems wouldn’t exist:
- The average taxpayer spends about 18 hours preparing a personal tax return.
- Since 2001, 5,000 changes have been made to the tax code. Note: the current tax code consists of nearly four million words!
- Individuals and businesses spend about 6.1 billion hours a year complying with tax-filing requirements.
- 60 percent of taxpayers hire tax preparers, with another 30 percent relying on tax software for preparation that costs $50 or more.
According to tax advocate calculations, doing away with tax expenditures (a fancy word for existing income exclusions, exemptions, deductions and credits) would cut individual income tax rates by 44 percent and still generate the same amount of revenue collected under the current rules.
Yes, it seems simplifying the tax code would definitely be the way to go!
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