Now that “Tax Season” is substantially over perhaps it is appropriate to offer some ideas on what he can do to improve the nation’s tax system and the Internal Revenue Service.
As a CPA for over 40 years I believe I am qualified to say unequivocally that our tax system is a convoluted set of laws and regulations created by those seeking power, those with social agendas and a myriad of indefensible philosophies. It is time to scrap it and replace it with an set of laws whose only aspiration is to collect money for the treasury in the most objective manner (forget “fair”). “Fair” like “beauty” is in the eyes of the beholder.
• CORPORATE TAXATION: Eliminate all forms of taxation at the entity level. In other words, no corporate taxation. All taxes should be at the shareholder level. while this would have been deemed impractical 50 years ago, with current technology it is not only practical but is already the rule for publically traded partnerships. Computer models by learned people have shown this will actually increase tax collections. Laurence J. Kotlikoff wrote an article on this subject which was published in the New York Times on January 5, 2014. In it he says “…..eliminating the United States’ corporate income tax produces rapid and dramatic increase in American investment, output and real wages, making the tax cut self-financing…..”.
• PASSIVE ACTIVITIES: Repeal the 1986 Tax Reform Act. Its rules regarding passive activities are illogical, indefensible and destructive. Anyone should be able to deduct losses from any business in which they are clearly “at-risk”.
• TAX RATES: Go to a three rate system, 15%, 28% and 31%. No complications. That is that.
• RMD: Eliminate Required Mandatory Distributions for retirees. (RMD). Who benefits from this? Especially now that interest rates are so low we are forcing people who do not currently need their retirement funds and still working to withdraw the funds.
• EARLY WITHDRAWAL OF RETIREMENT FUNDS PENALTY: Eliminate the 10% excise tax on early withdrawal of retirement funds. The recipient will be paying tax on the withdrawal. Why isn’t that enough?
• ESTATE TAX: Eliminate the estate tax. This is just a “envy tax”. It has no purpose other than to be in judgment of those who have accumulated wealth. That is not the role of government.
• TWO MARTINI TAX: Eliminate rules regarding entertainment expenses and the 50% deductibility rule. Again, this makes no sense. All legal expenses should be fully deductible if the purpose was to was to increase sales, profits, etc. In other words all expenses should be deductible which have a business purpose.
• ITEMIZED DEDUCTIONS: Eventually we should move away from itemized deductions toward a flat tax. However in the meantime their deductibility should be applied equally to all taxpayers regardless of income level. In the meantime eliminate prohibition of deductibility of medical expenses not in excess of 10% of your adjusted gross income. The same goes for miscellaneous deductions.
• FRINGE BENEFITS: Fringe benefits paid by employers and or partnerships for partners such as medical insurance, life insurance, retirement plan contributions and various other such expenses as allowed by most large corporations should be deductible in the same fashion by all entities. Current laws are convoluted at best and almost always hurt “the little guy”.
• ALTERNATIVE MINIMUM TAX: This is a parallel tax system that catches you if the present system gives you too many benefits and thus a lower tax. That is also indefensible and very hard to administer. Eliminate it is not needed and serves no real purposes except punishment for success.
• CAPITAL GAINS: Full deductibility of losses whether short or long. If the income is taxable then so should the losses be fully deductible. Eliminate the $3,000 annual limitation.
• DEDUCTIBLILITY OF PERSONAL RESIDENCE LOSS: Under present law losses experienced on the sale of a personal residence are not deductible while the gain is deductible if you do not qualify for the exclusion rules related to prime residence, etc. It should also apply to vacation homes.
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