Editore"s Note
Tilting at Windmills

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June 27, 2007
By: Kevin Drum

SIMPLE TAXES....I didn't mean to give the impression yesterday that I'm opposed to tax simplification. It's a great idea and Democrats ought to be in favor of it. But this from Ezra Klein seems wrong to me:

Additionally, tax simplification is the sort of policy which would make a great many people very happy at just about no extra cost to the government.

Somebody in comments should correct me if I'm off base about this, but my understanding is that the whole problem with tax simplification is that although it might make a great many people slightly happier, it inevitably makes a small number of people much angrier because they lose some loophole tax credit or other. And that small number of people will raise bloody hell about it.

That's not to say it shouldn't be done. But politically it's harder than it looks, and the extent of simplification is limited in any case. If a straight salary is your only income, simplification is eminently possible (though we all still love all our deductions, don't we?). If it's not, then it's not. Welcome to the 21st century.

POSTSCRIPT: I'd also like to offer up a rule of thumb similar to my warning that anyone whose main objection to national healthcare boils down to "hip replacements in Canada!" is not to be taken seriously. It's this: any simplification proposal that touts a smaller number of tax brackets is likewise not to be taken seriously. The complexity of taxes has nothing to do with the number of brackets. It has to do with calculating your taxable income.

And a note to Ron Wyden: any "simple" version of the 1040 form that includes the phrase "see page x" over a dozen times is cheating. By that standard, the current 1040 form is "simple" too.

Kevin Drum 12:21 PM Permalink | Trackbacks | Comments (76)

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Comments

One simplification that we can do:

Don't require a more complex tax form just because of some arbitrary income level.

I hate having to fill out the full sheets for my spouse just because her income is over 50K... She doesn't earn any other income, not even savings. There's lots of people in California who are like that, and I'm sure across the country. Just because they make money doesn't mean they have anything to put on the more complex form!

And don't make me calculate things which don't apply to me! That's the same thing, but just as annoying.

Posted by: Crissa on June 27, 2007 at 12:27 PM | PERMALINK

The 1040EZ is pretty simple...

Posted by: Happy Chandler on June 27, 2007 at 12:31 PM | PERMALINK

You want an easy one? Restructure the AMT so the middle class doesn't have to fill out the forms, and pay for it by goring some particularly sacred oxen. The oxen will scream, of course, but the middle class will roar, and that will drown out the screams.

It would be a good way to illustrate how to approach tax simplification more broadly. It can only be done with a broad coalition taking on a very large number of special interests at once, to create enough of a benefit for the general population that it registers on their radar. That takes a "movement," which as you observe is a difficult thing to get started.

Restructuring the AMT would be a very useful pilot project.

Posted by: bleh on June 27, 2007 at 12:31 PM | PERMALINK

But politically it's harder than it looks, and the extent of simplification is limited in any case.

Hah? Why so? It's eminently easy. One possibility is a flat tax rate. Another possibility (which I favor) is to eliminate the income tax and replace it with a national consumption tax or VAT. What's your problem with either option?

Posted by: Al on June 27, 2007 at 12:32 PM | PERMALINK

I think we should demand simple calculus as well.

Posted by: bushburner on June 27, 2007 at 12:34 PM | PERMALINK

I started in taxes shortly after the 1986 code went in. It was supposed to simplify things, but ended up being called "The Tax Accountants Full Employment Act".

The IRC approach to taxes is rule based, which makes it an ever expanding game. Each innovation by the private side is met by additinal rules from the government. It reached an unworkable mass years ago where we were promised a full rewrite, but that's a serious project for a serious government. (yeah, I know)

Other countries use a system more directly linking taxable and financial statement income, and give their agencies more authority to interpret. Gonna happen here? No.

There is some room for simplification in at least 2 big areas. The split regular/AMT system could get recombined, and the number of credits chopped down. That one would take some alliances,good faith, negotiating in Congress, with direction from the White House.

As always, not having a competent Executive bites,

Posted by: Downpuppy on June 27, 2007 at 12:35 PM | PERMALINK

How about a single line in the tax form for liberals to pay extra to the IRS since they feel taxing people to death is such a good idea. Put your money where your mouth is. Oh thats right, you want somebody else to pay for your idealism.

Posted by: BlaBlaBla on June 27, 2007 at 12:40 PM | PERMALINK

The problem with tax discussions is that everybody focuses on tax rates when the real issue is how do we define "income"? When you fill out your tax form, the tax part is easy, and the write-off part isn't hard. It's how you determine income that is overly complicated.

Posted by: Wally on June 27, 2007 at 12:41 PM | PERMALINK

It's this: any simplification proposal that touts a smaller number of tax brackets is likewise not to be taken seriously. The complexity of taxes has nothing to do with the number of brackets. It has to do with calculating your taxable income.

We should have ONE tax bracket and ONE tax rate! Seven percent of my non-investment derived income is all I am willing to pay! Not a penny more!

Watch this economy explode if the tax rates were flattened to a mere 7%. It's quite likely that the explosion in wealth in this country would send shudders throughout Europe and China.

Posted by: Norman Rogers on June 27, 2007 at 12:50 PM | PERMALINK

The complexity of taxes has nothing to do with the number of brackets. It has to do with calculating your taxable income.

Thanks, Kevin. It needed to be said.

Posted by: mk on June 27, 2007 at 12:54 PM | PERMALINK

There are a whole slew of different "incomes" on a given return - Gross, Adjusted Gross, Modified Adjusted Gross (several versions), Taxable, ordinary, and Alternative Minimum.

The area with the most waste of time & energy is the bottom half of 1040, page 1 - the trip from Gross to AGI. All the little deductions in there have constituencies (except maybe Archer MSAs - bleah), but taken together, they're all not worth spit.

Nor is the long string of credits on Page 2.

What I question is whether the effort of people to keep records of their deductions is really wasted. So they do it primarily for the tax code - keeping records of expenditures is something we all should do anyhow.

Posted by: Downpuppy on June 27, 2007 at 1:02 PM | PERMALINK

Why only non-investment derived income Norm? Why not 7% on all income period. Why is investment income more sacred than earned income?

Posted by: Clive on June 27, 2007 at 1:04 PM | PERMALINK
Somebody in comments should correct me if I'm off base about this, but my understanding is that the whole problem with tax simplification is that although it might make a great many people slightly happier, it inevitably makes a small number of people much angrier because they lose some tax credit or other.

I dunno, Edwards' one proposal that the IRS would use the information provided to it to provide pre-filled forms that the majority of taxpayers would need to do nothing but review, sign, and return would be a simplification that wouldn't affect any actual tax credits or other preferences, but would make a lot of peoples lives a little bit easier.

Posted by: cmdicely on June 27, 2007 at 1:05 PM | PERMALINK

Income is income, NR. One tax rate on all income, be it wages, investment-derived, gifts, executive stock options, bank robberies, whatever. I'd go for that.

And what's with your "...is all I'm willing to pay." If you want to haggle, go shopping in Mexico. If you expect a government to supply you with an army and police to protect you, build roads for you to drive on, provide airports for you to fly from, deliver clean water to your home, and even take care of some priorities that other people have but you don't happen to share, then the least you can do is pay the freight.

Posted by: tomeck on June 27, 2007 at 1:08 PM | PERMALINK

"How about a single line in the tax form for liberals to pay extra to the IRS since they feel taxing people to death is such a good idea."

How about a single checkbox on the tax form for conservatives to exempt themselves from paying any taxes whatsoever? Of course, by so doing you'll also be opting out of all those onerous services that are paid for by taxes but, hey, you stouthearted self-sufficient folks can then be your own police, fire department, educators, soldiers (Fat chance), sewer and road repairmen, etc. You'll be free as birds!

Conservatives don't hate taxation per se, they just hate it when it applies to them. The past six years have shown that they don't hate spending either, they just prefer to do it by deficit so that someone in the future will foot the bill.

Posted by: Dennis -SGMM on June 27, 2007 at 1:09 PM | PERMALINK

Couple of points to add from another tax guy...

I believe that much of the complexity of the individual income tax system largely due to the credits/deductions/loopholes that everyone loves so much. My question would be do we want to use our taxing system to help drive individual's behavior and if so is it really working? Did you buy your house just because of the tax deduction? Did you have a child because of the tax credit? Did you pay your accountant more in April because it is a deduction next year? More recently, did you put new windows on your home this year versus next year just for the tax credit?

If we really believe that giving people these extra incentives via tax savings helps drive behavior that the country wants to promote, they we should keep them in place. If everyone bought a hybrid car because they doubled the tax credit, I say keep the accountants busy and lets all get 50 miles to the gallon.

If these incentives don't do anything except save money for those who can afford to pay someone who knows that they exist, and people will get married, have kids, buy houses, new windows, etc without them, why are they there in the first place?

Regarding the AMT issue, I believe it's a good idea from a policy standpoint. It disallows some deductions and recalculates the tax based on a flat rate. It was put in place to try and prevent the super-weathly from exploiting the loopholes to pay next to nothing but assessing a flat tax on their income. The calculation is overly burdensome currently but could easily be tweeked (ie, If you make over X amount, take your AGI multiplied by 15% and you have your AMT) but the policy behind it seems sound to me.

Posted by: AMP on June 27, 2007 at 1:11 PM | PERMALINK

Just looking at the comments upthread, where does this blind faith come from among "conservatives" (radicals, the lot of them) that a non-progressive tax would increase wealth or productivity? And on top of that, that somehow their tax rates would be lowered?

I mean, if they can't see what's happened during the past 30 years or so of conservative experimentation with taxes (hint: only the rich have gotten richer), they might at least be able to do some simple conceptual math (if the rich pay less, everybody else pays more).

I guess it's just the "if I shout loud, I'm right" school of argument ("school" as in kindergarten), but it still baffles me. Are their egos so fragile, and so wedded to these insane ideas, that they render presumably more-or-less normally intelligent people incapable of even the simplest observations or logical thoughts?

Bizarre...

Posted by: bleh on June 27, 2007 at 1:13 PM | PERMALINK

A few years back there was a simplified tax form ciruclating around.

How much did you make? __________

Send it in.

Bushburner would like that since it is simplified calculus. (By the way I agree, the world doesn't need more Bessel functions).

While I hate to appear that I am in partial agreement with Norman, I'm for a flat tax, on all types of income. Also no deductions/write offs, etc.

Posted by: optical weenie on June 27, 2007 at 1:14 PM | PERMALINK

You clowns can't have ALL of my money!

I realize you want to confiscate the hard-earned income from entrepreneurs and spend the money to give everyone a free ride on the goodie truck, but why the resistance to a FLAT TAX?

When businesses know what their tax rates are going to be, they invest and plan accordingly. Taxes are already too confusing and TOO HIGH.

Cut them and make them simpler. And keep your dirty mitts off of my money, sir!

Posted by: Norman Rogers on June 27, 2007 at 1:18 PM | PERMALINK

I realize you want to confiscate the hard-earned income from entrepreneurs

No we don't, we'd be happy just with your money and let the other entrepreneurs alone.

And that money belonged to somebody else before they gave it to you, so keep your dirty mitts off their money, why don't you!

Posted by: tomeck on June 27, 2007 at 1:24 PM | PERMALINK

Rich people get more from society than poor people do. There are also a number of taxes (Social Security, sales tax, etc.) that are either flat or regressive, in the sense that they soak up a higher fraction of the income of poorer folks.

We've also performed an experiment over the past 25 years, and established that massive concentrations of wealth in the hands of a few yields stagnation or decline for everyone else. We also learned this 100 years ago. We need a very, very high tax rate for very large incomes and a very, very high inheritance tax. Corporations will then choose to distribute 100 million dollars to their shareholders and workers instead of funneling it to their CEO and his cronies. We're tired of class warfare by the rich and their bootlickers.

Posted by: Marc on June 27, 2007 at 1:26 PM | PERMALINK

No one is asking for ALL of your money, just 7% of all income. Again, what makes investment income more sacred than earned income?

Posted by: Clive on June 27, 2007 at 1:27 PM | PERMALINK

Excuse me, tomeck, but I EARNED it.

What do you and the comrades down at the Politburo have against people who EARN money? Are you jealous? Perhaps if you actually did something useful--i.e., created wealth and then used that wealth to build more wealth, as I have done for the past 30 years, you'd have a dog in this fight.

The quickest way to get liberals to stop talking about what is "fair" is to include any discussion of wealth or money. Then, fairness becomes a discussion on the quickest way to take money away from those who have EARNED it and to give it to Joe Blow.

Nuts to that!

Posted by: Norman Rogers on June 27, 2007 at 1:28 PM | PERMALINK

My Normie thats what it's really about.Mine,Mine,Mine. I have a six year old that acts the same way. Interesting that all that balderdash about wealth creation is really about you being a greedy fuck. You act like your being squashed to get every last dime out of you. what a crock of shit. It must be very difficult to pay for your lexus with such onerous taxes being levied on you.Bwahahaha

Posted by: Gandalf on June 27, 2007 at 1:30 PM | PERMALINK

Apologies to all for the repeated posts

Posted by: Gandalf on June 27, 2007 at 1:31 PM | PERMALINK

Here--a man I have respected for many years--Dick Armey speaks on the Flat Tax:

Our current income tax system is a catalog of favors for special interests and a chamber of horrors for the rest of America. As a country, we spend more time filing taxes than we spend building every car, truck, and van produced in the United States. To put this in perspective, it takes the average taxpayer over 26 hours to file a standard 1040, which has caused over 60 percent of Americans to pay a professional to complete their taxes. Simply complying with the complex tax code costs $194 billion each year, or about $650 for every man, woman, and child in America.

Aside from the tax system’s complexity and unfairness, it also inhibits saving, investment, and job creation; it imposes a heavy burden on working families; and it undermines the integrity of the democratic process. The U.S. tax system cannot be repaired by tinkering or fine-tuning. It must be completely replaced with a simple and more efficient alternative. Of the many proposed reform measures, the flat tax best meets the goal of collecting revenue in the simplest, fairest, and most transparent manner possible.

The flat tax will replace the current tax code with a flat-rate income tax that treats all Americans equally. All income [I think investment income should be EXEMPTED, but nevertheless...] is taxed only once and at one rate. There are no breaks for special interests and no loopholes for powerful lobbies, just a simple tax system that treats every American the same.

Individuals and businesses will simply complete a tax return the size of a postcard. All deductions and credits would be eliminated, while the only income not subject to tax would be a generous personal exemption for every American. For example, a family of four could be exempt from the first $40,000 of income. This personal deduction would be indexed to inflation and the flat tax rate could be calculated to be revenue neutral, so as to not increase the deficit in the process of enacting this important reform. Additionally, according to a study by the former chief economist for Congress’ Joint Committee on Taxation, national income would be 5.7 percent larger after five year under the flat tax than under the current system. That means over $500 billion in increased output or more than $3,000 in additional income for a typical family of four.

Sounds like a peach of a plan to me! But wait, say the liberals--how do we give money to deadbeats under this plan?

Simple answer--you DON'T!

Posted by: Norman Rogers on June 27, 2007 at 1:33 PM | PERMALINK

Jesus. You read the level of "informed comment" in these tax threads and you still want democracy?

Posted by: Maynard Handley on June 27, 2007 at 1:34 PM | PERMALINK

The Wyden "simplified 1040" is a crock in more ways than one.

It's a nice trick, that line 7... "Total income from all sources". It's calculating the *&#% number that goes on this line that is 85% of the complexity of doing your income tax.

Oh, and any tax reform that keeps line 13a on Wyden's form (Mortgage interest deduction) is a big cop-out. Yes, I'm sure that lots of real estate agents and mortgage brokers love this one, and of course existing homeowners who decided how much they were willing to pay for their house or their mortgage would scream if it were eliminated, but it's still a big cop-out. (And I wonder if the housing bubble would have reached the heights it did without a mortgage interest deduction...)

Posted by: Alex R on June 27, 2007 at 1:34 PM | PERMALINK

Jesus. You read the level of "informed comment" in these tax threads and you still want democracy?

Tell me about it! In case anyone has forgotten, "communism" hasn't been successful as of late.

Bwah hah hah hah hah hah hah!

Posted by: Norman Rogers on June 27, 2007 at 1:39 PM | PERMALINK

Norm, if your 7% fantasy were to become reality, the sound you hear would be the complete destruction of our economy.

Yes, we can simplify income taxes quite easily for everyone but those who run their own business. Much of the complexity in the Code comes from our attempt to have self-employed file their business income in the 1040. It would be much better if we required all self-employed to maintain scrupulously separate books and file a completely separate form for business if they have taken in more than, say $1,300 in self-employment income.

Once the self-employment stuff is out of the way, we can get rid of all deductions, start everyone with a tax credit of $2,500 per person in the household (with possible additional credits for the elderly and disabled), have three tax rates: 20% (up to, say, $35,000 single/$70,000 married gross), 30% (to $75,000/$150,000 gross), and 40% (above $75,000/$150,000) with all income taxed equally.

Voila, one postcard.

Posted by: freelunch on June 27, 2007 at 1:39 PM | PERMALINK

Also, anyone the least bit interested in tax simplification and reform should read the chapter on the Reagan tax reform in Alan Blinder's "Hard Heads, Soft Hearts". I don't have the book in front of me, but the chapter described how real tax reform *can* happen.

Posted by: Alex R on June 27, 2007 at 1:40 PM | PERMALINK

Jeez Norm, even Dick Armey disagrees with your almost pathologic protection of investment income. You still haven't given a defense of this supposed sanctity of investment income that you seem to be fixated on.

Posted by: Clive on June 27, 2007 at 1:46 PM | PERMALINK

Norm, if your 7% fantasy were to become reality, the sound you hear would be the complete destruction of our economy.

Cite, please.

have three tax rates: 20% (up to, say, $35,000 single/$70,000 married gross), 30% (to $75,000/$150,000 gross), and 40% (above $75,000/$150,000) with all income taxed equally.

Great googlymoogly! F O R T Y Percent! You would seriously RAISE the tax rate to F O R T Y (40!) Percent!

That sound you just heard? That was everyone who ever made more than 500K in a good year moving their money to Bermuda or Luxembourg. And tell me THAT wouldn't ruin this economy, sir!

What a crock! F O R T Y Percent!

Next you'll tell me your plan to deal with welfare is to triple the benefits and give every single person on welfare their own free BMW!

Posted by: Norman Rogers on June 27, 2007 at 1:46 PM | PERMALINK

"
Jesus. You read the level of "informed comment" in these tax threads and you still want democracy?

Tell me about it! In case anyone has forgotten, "communism" hasn't been successful as of late.
"

Hmm. That about sums it up, doesn't it?
The opposite of democracy is apparently communism. That's some real deep knowledge of both economics and politics.

Posted by: Maynard Handley on June 27, 2007 at 1:49 PM | PERMALINK

Edwards' one proposal that the IRS would use the information provided to it to provide pre-filled forms that the majority of taxpayers would need to do nothing but review, sign, and return would be a simplification that wouldn't affect any actual tax credits or other preferences, but would make a lot of peoples lives a little bit easier.
Posted by: cmdicely on June 27, 2007 at 1:05 PM

No shit! They already review your calculations and correct them anyway, why not do it BEFORE you send it in? Give them something to do January-March.

Posted by: doug r on June 27, 2007 at 1:55 PM | PERMALINK

Kevin and others are trying, but a lot of you guys still haven't gotten the message, so I'll have to shout:

TAX BRACKETS HAVE NOTHING TO DO WITH TAX SIMPLIFICATION!!!

Try this simple test. Suppose there were indeed only one question on the tax return - how much did you make?
So say your answer is $250,000.

You could still have three tax brackets (or more) and figure it out in seconds, as in this illustration:

First 100,000 - 10 percent: $10,000
From 100,001 to 200,000 - 15 percent: $15,000
From 200,001 to 250,000 - 20 percent: $10,000
Total tax: $35,000

You don't even need to calculate this youself, as it can be built into a tax table or computer program.

The complexity comes from answering that seemingly simple question - how much did you make? (or more accurately, how much did you make that the government considers taxable?). That is where any simplification needs to come from, not in the rates or brackets. There is absolutly no conflict between progressive taxation and tax simplification, and it is a bald-faced lie for the conservatives to imply otherwise.

Posted by: Virginia Dutch on June 27, 2007 at 1:55 PM | PERMALINK

You still haven't given a defense of this supposed sanctity of investment income that you seem to be fixated on.

Clive, you simply don't get it.

I took a risk with that money. I risked that it would disappear. I risked that it would return a flat rate that was BELOW what I expected. I risked it because I have faith in this great country. My participation in the investment field makes this a stronger country. The investor class, of which I belong to, is the foundation of our capitalist system. I am the grease that keeps the wheels spinning. I am the fuel that makes the motor run. I am, in short, America.

So what incentive do I have to RISK my money if you and your pals at the COMINTERN are just going to stick a bayonet in my face and take it away?

Did it not occur to you that I might take that money and risk it some more, to build more wealth and to continue to fuel this great engine called my America? My justification for not taxing that income is just that--it allows me to keep investing, should I choose to.

The opposite of democracy is apparently communism. That's some real deep knowledge of both economics and politics.

What other nonsense do you have to spread? I said nothing about "democracy." I speak of "CAPITALISM."

North Korea has a "democracy" or so they claim. They don't have "capitalism" sir.

The two main economic philosophies we see as models are capitalism and communism, and those two philosophies spent the better part of fifty years opposed to one another. I happen to have lived through those times and made a boatload of money by betting on the former rather than the latter. You sneer like one of those elites that has a Master's Degree in Spanish guitar theory.

Stick around and you might learn something, Chumley.

Posted by: Norman Rogers on June 27, 2007 at 1:56 PM | PERMALINK

Norm, it's your buddy George W Bush who created a huge federal debt that has to be paid off. He claimed that he could get a free ride by cutting taxes. He was wrong, but everyone knew that he would be.

Stop whining. If the rates don't have to be that high, it's fine with me. If you don't want to live in a country that collects taxes, I'm sure no one would object if you moved to Mogadishu.

Posted by: freelunch on June 27, 2007 at 1:58 PM | PERMALINK

Simplification is a laudable goal, but it isn't the case that it is prevented by "small groups of angry people". Practically every person in the country gets some tax loophole to use- for some it is the child credits, for others it is the interest deduction, and for still others it is a subsidy of one kind or another. Simplification is stopped by large-scale opposition to the removal of hundreds or thousands of tax loopholes that affect practically everybody.

Posted by: Yancey Ward on June 27, 2007 at 1:59 PM | PERMALINK

Oh thats right, you want somebody else to pay for your idealism.

No, and I am sick of you idiots. Some of us are trying to have a society over here. If you want no part of it, go be a mountain man somewhere primal. Go where there are no roads, or services, or schools, or hospitals, or a power grid, or a police force, or fire department. As that would take the likes of you off the intertoobz, I think it is a notion you pot-smoking Republicans (Libertarians) all ought to consider.

Posted by: Blue Girl, Red State (aka G.C.) on June 27, 2007 at 2:04 PM | PERMALINK

Normie,

So by investing, I'm sorry, taking a risk, you are contributing to the common good and building this great nation and thus should not have to pay your 7% in our new flat tax regime? Don't forget, we are in complete agreement on the flat tax idea, our only quibble is what constitutes income.

OK. So if you are taking a risk on a company that does its manufacturing in China and pays its taxes in Bermuda then you are not contributing to the common good of this great nation of ours? After all your investment creates no jobs or business tax income.

So then you must agree that all investments must be vetted to ensure that they are indeed helping to build this great nation through job creation and business tax receipts. Only then will they be exempted from taxation.

Seems fair though I have to ask, Why are you so in favor of having the government involved in my business affairs? Why do you hate America Normie???

Posted by: Clive on June 27, 2007 at 2:05 PM | PERMALINK

Norman Rogers, please take your money and go somewhere else. You are not important and are easily replacable by someone else.

Posted by: ken on June 27, 2007 at 2:11 PM | PERMALINK

Norman Rogers, please take your money and go somewhere else. You are not important and are easily replacable by someone else.

You can't make me stop loving my country, sir.

Posted by: Norman Rogers on June 27, 2007 at 2:14 PM | PERMALINK

Normie you are priceless.

You go ahead and keep your money, just keep hitting them out of the park with lines like:

"You can't make me stop loving my country, sir."

God that's beautiful, I think I'm tearing up a little...

Posted by: Clive on June 27, 2007 at 2:44 PM | PERMALINK

Just to tell truth in front of everyone, Mr. Norman Rogers steals money from government and hides money all over house.

Mr. Norman Rogers no pay fair and make everyone go without shirts and gives sandwiches that are cheap.

Mr. Norman Rogers make me clean up his vomito every Saturday after he drink too much with tile game Friday night.

Mr. Norman Rogers has many pink and lacy clothings to be washed. He say is for his lady friend but I no see any ladies in the house for a long times now.

Posted by: Manuel Roderigo Edgardo Diaz y Rivera on June 27, 2007 at 2:45 PM | PERMALINK

Norm

So 27 years with the same company, rising up through the ranks, working more than 40 hours when I'm paid for 40 means I don't earn my salary? And I'm not earning the money I make off my investments?

Every working stiff earns their money, Norman. You're not so special. The only difference is that you think you do it all on your own, when in fact you get so many subsidies from the government it's surprising you don't trip over them.

Pay your taxes and shut up.

Posted by: tomeck on June 27, 2007 at 2:48 PM | PERMALINK

You can ridicule his personal habits, you can blast holes in his logic, but you CANNOT make Norman Rogers stop loving his country.

You can't do it, so top trying, it won't work, really...

Oh, oh, now I'm getting emotional again...

Posted by: Clive on June 27, 2007 at 2:56 PM | PERMALINK

I work in a corporate tax department and the idea of simplification is about as plausible as world peace.

We spend about 20 million dollars determining our that one line on the financials, Income Tax. The return was about $400 just to mail it because the amount of paper involved.

If you were to make every drop of income taxable, there would be a major recession. Think of the people that the industry employs, from government workers to return filers, to tax planners, to tax people like myself, there are just too many jobs dependant on complicated federal and state tax laws. All that aside, the income in circulation from loopholers and cheats would disappear.

And no one has even mentioned state income tax.

It's good political fodder, but realistically, it ain't goin' no where anytime soon.

Posted by: ScottW on June 27, 2007 at 2:58 PM | PERMALINK

Manuel--

Let's take this offline, okay? If you want more dinero, all you have to do is ask. Comprende?

Posted by: Norman Rogers on June 27, 2007 at 3:01 PM | PERMALINK

Knock out the mortgage deduction and see how much people like tax simplification.

I would consider a flat tax IF it included investment income AND therefore turned out to be more progressive than what we have now.

Marc is spot on: the rich ought to pay for the additional benefits they get from our society.

And, someone please increase Norman's Thorazine dose.

Posted by: SocraticGadfly on June 27, 2007 at 3:07 PM | PERMALINK

You are liar Mr. Norman Rogers! I ask and I ask and always it is later later later Manuel. I am busy Manuel. Not now Manuel. Fresh the drink and rub the feet Manuel. Always!

Posted by: Manuel Roderigo Edgardo Diaz y Rivera on June 27, 2007 at 3:08 PM | PERMALINK

No one can stop me from loving my country.

Unless, that is, it's going to cost me some money.

Posted by: Virginia Dutch on June 27, 2007 at 3:11 PM | PERMALINK

Tax rates don't make calculating your taxes easier or harder. It is still a simple multiplication problem.

Taxable Income times Tax Rate equals TAXES PAID

The problem is defining TAXABLE INCOME.

It is not possible to define taxable income in under 1,000,000 words, period.

Posted by: neil wilso on June 27, 2007 at 3:15 PM | PERMALINK

Norm

you and the comrades down at the Politburo

By the way, asshat, with all your whining, you do a disservice to the people who really did have to worry about a Politburo, people who really did get carted off in the night and sent to Siberia. Your pitiful attempt to try to claim some of their moral authority when you know you have nothing to fear is sickening.

Posted by: tomeck on June 27, 2007 at 3:22 PM | PERMALINK

That flatter rates have led to more complicated returns is not really a surprise. Gimmicks like AMT & a brazillian income-capped deductions and credits to introduce a bit of equity in the systems will always be messier than a progressive rate structure.

Posted by: Downpuppy on June 27, 2007 at 3:34 PM | PERMALINK

So Norm

Have you been "helping" Manuel with his tax returns ?

He probably needs a second opinion

"The water won't clear up 'til we get the hogs out of the creek." - Jim Hightower

Posted by: daCascadian on June 27, 2007 at 3:36 PM | PERMALINK

Somebody in comments should correct me if I'm off base about this, but my understanding is that the whole problem with tax simplification is that although it might make a great many people slightly happier, it inevitably makes a small number of people much angrier because they lose some loophole tax credit or other. And that small number of people will raise bloody hell about it.

Indeed. Reread the history of the 1986 simplification. Almost every deduction/credit that was eliminated had a complicated adjustment period. Every deduction/credit had a lobby that prominently wrote editorials in NYT and WSJ, and that gave money to candidates. It was very hard to get the law passed.

Posted by: MatthewRmarler on June 27, 2007 at 4:10 PM | PERMALINK

Folks should remember that until 1986, the top tax bracket was 50%. Until 1981, it was 70%. From the end of WWII until 1963, it was NINETY-ONE PERCENT. The fact that the postwar years were not the second coming of the Great Depression, but instead something of a Golden Age of entrepreneurship and industrial expansion MIGHT lead one to conclude that high brackets don't, of themselves, lead to a faltering economy. One might also realize that income taxes being extraordinarily LOW in the past decade or so has not turned the US into a Nirvava of self-reliance and strength.

One might also conclude that social conservatives who hearken back to the perceived "values" of the Fifties and Sixties (before the hippies ruined everything) seem to have selected not to endorse the tax policies of that time. (They are full of it, in other words.)

To the flat-taxers: why 7%? I understand that you might want it to be 7%, but why do you think it would actually BE that? Why not 20%? Even 30%would still save me (W-2 income earner, small investor) plenty, if I didn't have to pay SS tax. And why tax capital gains or dividends as anything other than ordinary income? Is the fact that you don't get it by working at a job make it better somehow?

Posted by: carlton on June 27, 2007 at 4:13 PM | PERMALINK

My question would be do we want to use our taxing system to help drive individual's behavior and if so is it really working?

"We" are a rather diverse group, and for most of us it works better than alternatives that have enough votes in Congress. Everybody can point to something that isn't working, and to something that is working. They just disagree on the merits of particular cases. It's easier for Congress to keep creating new deductions/credits -- people are happier to see something that they like than they are unhappier to see something that they think isn't working, pretty much as Kevin wrote.

Consider the tax credit for installing solar powered equipment: most people prefer that to a direct subsidy, as it lets people direct their money if they choose, to a program that a majority want to see supported. It's their own earnings, whereas a subsidy looks like a transfer; is it "working"? It's easier for you (and your lobby) to get a new credit or deduction than to repeal that one.

Notice also that a subsidy would be called "pork", but the tax credit isn't because it comes out of the taxpayers' own earnings. So it's easier to pass tax credits than subsidies when Congress wants to influence industrial development.

I'm not saying it's good, only that it's easy to understand why the system is so complex.

Posted by: MatthewRmarler on June 27, 2007 at 4:27 PM | PERMALINK

Glad I dropped by today. Norm never fails to attract customers. And when he gets a good crowd, he does some of his best tricks. Love Manuel -- but what happened to Carmen, or whatever her name was? She complained too much and was fired? Manuel, there's a lesson for you. And remember, illegals can't join unions. Count your blessings.

Posted by: JS on June 27, 2007 at 4:42 PM | PERMALINK

The folks who love the "flat tax" keep trying to claim the banner of "tax simplification". The income tax doesn't have to be based on a flat percentage in order to be simple. In fact, as simple-minded as the flat tax is, it's not the best way to make it easier to compute your tax liabilities. After all, all dollars are created equal, but they don't stay that way. That's what Jesus told me. And Lazarus.

Posted by: Zeno on June 27, 2007 at 5:19 PM | PERMALINK

I think I have ranted on this before, but I can't resist.
To simplify, get rid of all credits, except the AMT, foreign tax, and withholding credits.
Tax the money when it is earned, i.e. don't allow losses in profitable years and then try to collect the taxes later, when the company may no long be profitable. So, disallow almost all loss offsets and carryovers and carrybacks (except AMT credit carryforwards).

Tax income on the entity that earns it, whether it is a partnership or a corporation. No more trying to examine, assess and collect tax on dozens or hundreds of partners for one single business. Make both forms of business equal by allowing deductions for dividends and distributions out of current year net income (i.e. replace the dividends rec'd deduction with a dividend/distributions paid deduction). Tax dividends/distributions paid out of current year income as ordinary income, and those out of prior year earnings and profits at capital gain rates (but don't allow the company a deduction for this kind of dividend). Then lower the tax on businesses to the capital gains rate (sure this is a huge cut, but the effective corporate tax rate is down to 6%, so an enforceable lower rate is better than an unenforceable moderate tax rate).

Make alt min taxable income 90% of financial statement income. This along with the disallowance of loss carryovers will take away much incentive for the huge disparity between tax return income and real income.

Finally, increase the standard deduction to a place where poor people would not even have to file tax returns, like to about $25,000 or more (don't forget they are already paying a flat 14% social security tax on every penny they make).

Then require withholding on dividend income at the applicable rate for capital gains and ordinary income.

Posted by: jussumbody on June 27, 2007 at 7:54 PM | PERMALINK

Hey, Norman...

If the US had a GDP of 13.21 Trillion US in 2006... And took in somewhere under 2 Trillion US in tax revenue... (A deficit over spending, remember, it wasn't enought o pay for all the Republican controled government wanted)

...Is 2 7% of 13?

-Crissa

Posted by: Crissa on June 27, 2007 at 8:38 PM | PERMALINK

Just double the standard deduction. Nothing could be simpler and millions of taxpayers wouldn't need to bother itemizing any more.

Posted by: jalmari on June 27, 2007 at 8:59 PM | PERMALINK

The best way to simplify taxes sure as heck isn't to tax only the first sale of products - that (the lyingly misnamed "Fair Tax") is just a trick to let investors cycle money over and over without paying taxes on the multiplying gains. No, don't just "tax money only once", which is a fraud since money circulates and acts many times. Better and fairer: tax money a smaller percent over and over again, every time it changes hands for any reason (including from "corporation" person to any of its officers, hence not really a "double tax" since that's our charge for their limited liability.) That would put the damper on the whole speculative economy and force the investor class into more productive work.

BTW, the profit from trading back and forth would be diminished by sales taxes on stock trades, but that wouldn't make it undesirable to buy stocks. They would be cheaper as P/E, but appreciate in value about proportional to company growth. That would be the rational price for them given dampened variability and loss of extra value as hoped-for momentum swingers, and reduction to straight earning potential, which is what it should be all along in a healthy and fairer economy.

tyrannogenius

Posted by: Neil B. on June 27, 2007 at 9:49 PM | PERMALINK

Why even care about a simple tax code? Seriously.

People, we live in the computer age. Let computers do the work for you. How about the IRS distribute software (think Turbo Tax or Tax Cut like), not forms. Make the IRS/Government eat any software errors.

Simultaneously: 1) the tax code can be arbitrarily complex without any concern to the consumer; 2) it can change arbitrarily frequently, without any real concern by anyone (think web-based software), even in the middle of tax season; 3) the tax code can be verified rapidly and accurately through black-box testing; 4) we create huge incentives by the IRS to not mess up the tax (software) processing; 5) we have the elimination of huge classes of tax preparation businesses that represent nothing but dead weight economic losses; 6) and massively simplified taxpayer and IRS tax processing (and reduced cost).

Posted by: MLE on June 27, 2007 at 9:52 PM | PERMALINK

"Tax simplification" sounds great. But we live in a hugely complex society so it's just a pipe dream that a "simple" tax scheme would work. How about a fair tax system or one that sets the right incentives. "Simple" sounds good but is just an inane goal.

Posted by: RM on June 27, 2007 at 10:43 PM | PERMALINK

Since few may be looking at the older post on simple taxes anymore (KEEPING IT REAL....Matt Yglesias endorses Ron Wyden's tax plan today,...) I am reposting similar to my last at that thread since it relates to the current discussion. Please note the ironic twist at the end, so this is ultimately a sort of Socratic turn of the screw:

Those who criticized Kevin's correct reasoning on using inflation to calculate capital gain income: Your mistake is to consider "the dollar" as a proper unit of measure from one year to another, as if it were the "meter" in physics. But dollars are not equivalent from one time to another. If I buy some shares for what is called "100,000" dollars in 1987, then resell the shares for what is called "120,000 dollars" in 2007, the effective meaning of "dollar" has changed between those times. It is as if "the meter" had shrunk during those twenty years. Why not properly adjust for the changing magnitude of *the unit of measure*? The kicker is, just imagine renaming dollars in that period of the past according to the same purchasing power they have today (and the "dollar" has no meaning except as a medium of exchange.) We should even, for thinking about it, rename them dollars(1987) and dollars(2007), with a conversion factor that strips away the illusion of identity caused by name and convention. Then, we would say I spent maybe around 200,000 dollars(2007) and sold for 120,000 dollars(2007), and so had a loss of 80,000 dollars(2007). In general, we just can't refer to "the dollar" between different times and have meaningful numbers to plug into our calculations, any more than if the definition of the meter changed over time.

Again, suppose there had been no inflation, all else being equal. Then the numbers used to track the difference in "dollars" between those twenty years would be 100,000 and 60,000, which is a loss of 40,000 we would all agree. But that is the same loss already calculated in the inflated later dollars - proving the point. You should get this.

However, Dave Howard and KCinDC and others had a point: If an "investor" puts in money and then takes it out, he can call that a loss or tiny gain based on inflationary calculations, but if a person has it in a mattress and then pulls it out (or even, was in a bank for a few percent interest), then that person doesn't get to make an adjustment thereby. There should be some way to adjust for this. The least we can do is not tax dividends from accounts at the full rate, but at the inflation adjusted rate (i.e., 8% earnings with 5% inflation is about 3% actual earnings, etc.) But this can be hard, with money moved around in different accounts. Maybe better to just take all money transfers a small percent ...

tyrannogenius

Posted by: Neil B. on June 27, 2007 at 10:47 PM | PERMALINK

(tax all money transfers a small percent)

Posted by: Neil B. on June 27, 2007 at 10:50 PM | PERMALINK

Here's a tax suggestion (from my brother, Kyle) that is as simple as a flat tax but as progressive as the current income tax: Make taxes a flat rate on net worth rather than income. The top 1% own 38% of the wealth, so they should pay 38% of the taxes. The top 10% own 71% of the wealth, so should pay 71% of the taxes. The bottom 40% own 0.2% of the wealth, and so should pay only 0.2% of the taxes.

Norman Rogers is right: a flat tax is the fair way to do it --- a flat tax on wealth.

Posted by: Daryl McCullough on June 28, 2007 at 12:54 AM | PERMALINK

Daryl, you and your brother in law probably don't appreciate the intricacies of valuation but let me just say that if you thought the tax code was voluminous now, go ahead and try to calculate wealth. The IRS has a full slate of litigation for estate tax purposes already. How much do you think that one commercial building where you live worth? Fair market value? Income approach? Replacement cost? What discount rate? Beginning of the year? End of the year? Average?
I know the 2 of you agreed what a great idea this is, but you need to think about it some more and then sleep it off.

Posted by: TJM on June 28, 2007 at 8:03 AM | PERMALINK

Inflation affects many more median and lower wage earners negatively than those with investment income, who are a much smaller part of the income earning population. Our political economy should be based on providing the greatest utility to the greatest number, not protecting the wealth of a minority of nonvalue added members.

Accumulated wealth is treated as a golden calf by the political economy in America. Much is done to protect the wealth of the wealthy at the expense of the not wealthy. Protecting wealth has opportunity costs, and the opportunity costs of wealth protection should only be borne by the wealthy. Making median or lower wage earners pay taxes to guarantee bank deposits of the wealthy or creating tax regimes that favor investment income over labor income is a very big part of what is wrong with the political economy of the US.

Posted by: Brojo on June 28, 2007 at 11:51 AM | PERMALINK

Economist Max Sawicky read this thread and tries to provide a clear explication of the issue.
Max Speak You Listen

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