3 ms·

While I agree that the tax system should be simpler (which is a totally bipartisan opinion, imo), I don't think making the tax code simpler would ensure that th

by jd3 10y ago

While I agree that the tax system should be simpler (which is a totally bipartisan opinion, imo), I don't think making the tax code simpler would ensure that the ultra-rich don't hide their assets in overseas tax havens. The reason they are hiding their assets there is usually due to the ultra-low tax rates that these countries have (or thugs like Putin, Xi Jinping, pretty much any leader from the middle east or africa, ect. who use it to hide their blood money).

harryh 10y ago
I don't really think that having a simpler tax system is a bipartisan opinion at this point. I think we can see that Democrats want to raise taxes but go through various contortions so that these increases do not fall on "the middle class." You saw this in the various tax increases that were part of ObamaCare. You're also seeing it now with various proposals for increasing social security taxes on high earners (the donut hole). We've also seen lots of simplifying proposals from Republican politicians. In particular there is fairly strong support for eliminating the deductibility of state & local taxes (one of the more complex aspects of the individual income tax code).
- honkhonkpants 10y ago
  Isn't removing the social security tax limit a simplification rather than a complication of that code?
  - harryh 10y ago
    Most proposals don't remove the limit. They would tax income from 0 to X, not tax it from X to Y, and then tax it again for income over Y. Hence you get a "donut hole" of untaxed income in the middle. I can think of no economic justification for such a proposal, though it's clear why it would be politically palatable. But that's exactly where complexity comes from: political compromises.
- _delirium 10y ago
  In what sense is the deductibility of state & local taxes a complex aspect of the individual income tax code? I did that recently, and it was extremely simple for me to fill out. I paid some state/local taxes, and then I entered that number on my federal income tax return as a deduction. Now the treatment of investment income, that's complex. Even with my pretty modest investments it was a whole bunch of pages to fill out (more than 1/2 the total pages of the return), with a ton of special cases I had to read instructions for. Some of the more left-wing Democrats have proposed a simplifying measure that afaik no Republican has signed on to (or even most Democrats, for that matter): just treat all income the same for federal tax purposes, and delete the thousands of pages of the tax code that specify complex special treatment for dividend, qualifying dividend, and capital-gains income.
  - mattmcknight 10y ago
    I only see the complexity when you work across multiple states, or work in one and live in the other, and both try to claim all of your income. The real problem with the deductibility is that it causes the people in lower tax localities to subsidize the higher tax localities in terms of the federal budget. People in California are paying federal income taxes on up to 13% less of their income than people in Washington or Texas.
    - _delirium 10y ago
      Remember that the federal tax deductibility isn't only on state income tax, but all state taxes. I live in TX, and many of us deduct our very high state property taxes. So yes, there's there's an implicit subsidy, but it's fairly complex how it works out, depending not only on state, but income levels within the state. Generally, TX works out better for the very wealthy, and not necessarily great for lower-to-mid-income homeowners, because the latter tend to have higher ratios of property value to income, where TX's incredibly high property taxes hit them harder. For example, if you make $50k and live in a $150k house, your overall state taxes are higher in TX than in CA. But if you make $50m, you probably don't live in a $150m house; if you lived in say, a $5m house while making $50m, your TX taxes would be much lower than your CA taxes. In addition, many people take advantage of a nice loophole with TX property taxes, in that you get to choose when to pay them. TX allows tax year 2016 property taxes to be paid in any month between January 2016 and January 2017, inclusive. So what many people do is pay their property tax every other year, two years at a time. For example, you pay no property taxes in calendar year 2016, and pay both your 2016 and 2017 taxes in January 2017 (the last month in which to pay the 2016 taxes, and the first month in which to pay the 2017 taxes). Then on your federal taxes, take the standard deduction in 2016, and report two years' worth of state property tax deductions for tax year 2017. Works out as a pretty big win.

by jd3 10y ago

harryh 10y ago

I don't really think that having a simpler tax system is a bipartisan opinion at this point. I think we can see that Democrats want to raise taxes but go through various contortions so that these increases do not fall on "the middle class." You saw this in the various tax increases that were part of ObamaCare. You're also seeing it now with various proposals for increasing social security taxes on high earners (the donut hole). We've also seen lots of simplifying proposals from Republican politicians. In particular there is fairly strong support for eliminating the deductibility of state & local taxes (one of the more complex aspects of the individual income tax code).

honkhonkpants 10y ago
Isn't removing the social security tax limit a simplification rather than a complication of that code?
- harryh 10y ago
  Most proposals don't remove the limit. They would tax income from 0 to X, not tax it from X to Y, and then tax it again for income over Y. Hence you get a "donut hole" of untaxed income in the middle. I can think of no economic justification for such a proposal, though it's clear why it would be politically palatable. But that's exactly where complexity comes from: political compromises.
_delirium 10y ago
In what sense is the deductibility of state & local taxes a complex aspect of the individual income tax code? I did that recently, and it was extremely simple for me to fill out. I paid some state/local taxes, and then I entered that number on my federal income tax return as a deduction. Now the treatment of investment income, that's complex. Even with my pretty modest investments it was a whole bunch of pages to fill out (more than 1/2 the total pages of the return), with a ton of special cases I had to read instructions for. Some of the more left-wing Democrats have proposed a simplifying measure that afaik no Republican has signed on to (or even most Democrats, for that matter): just treat all income the same for federal tax purposes, and delete the thousands of pages of the tax code that specify complex special treatment for dividend, qualifying dividend, and capital-gains income.
- mattmcknight 10y ago
  I only see the complexity when you work across multiple states, or work in one and live in the other, and both try to claim all of your income. The real problem with the deductibility is that it causes the people in lower tax localities to subsidize the higher tax localities in terms of the federal budget. People in California are paying federal income taxes on up to 13% less of their income than people in Washington or Texas.
  - _delirium 10y ago
    Remember that the federal tax deductibility isn't only on state income tax, but all state taxes. I live in TX, and many of us deduct our very high state property taxes. So yes, there's there's an implicit subsidy, but it's fairly complex how it works out, depending not only on state, but income levels within the state. Generally, TX works out better for the very wealthy, and not necessarily great for lower-to-mid-income homeowners, because the latter tend to have higher ratios of property value to income, where TX's incredibly high property taxes hit them harder. For example, if you make $50k and live in a $150k house, your overall state taxes are higher in TX than in CA. But if you make $50m, you probably don't live in a $150m house; if you lived in say, a $5m house while making $50m, your TX taxes would be much lower than your CA taxes. In addition, many people take advantage of a nice loophole with TX property taxes, in that you get to choose when to pay them. TX allows tax year 2016 property taxes to be paid in any month between January 2016 and January 2017, inclusive. So what many people do is pay their property tax every other year, two years at a time. For example, you pay no property taxes in calendar year 2016, and pay both your 2016 and 2017 taxes in January 2017 (the last month in which to pay the 2016 taxes, and the first month in which to pay the 2017 taxes). Then on your federal taxes, take the standard deduction in 2016, and report two years' worth of state property tax deductions for tax year 2017. Works out as a pretty big win.