The Tax Code Paper

Andrew Elizavetsky

Professor Douglas Robertson

Pols 202

11/12/2017

Flawed Tax Code

Introduction

The tax code is meant to raise money and keep money for the US to use on needs for the people from the people. Even though the tax code does do that it is the tax code itself that causes crime, jobs and splitting headaches all over the country. It costs for the IRS and for the taxpayers. However, it gets more and more difficult because Congress is trying to bring in good things into the code which is good and there are a few of those like section 179. The only way to ix this is to flip it on its head and completely and drastically change the entire tax code.

Problem

The problem is that you must fill out all your tax forms which take minimum 7 hours, if you must fill out form 1040 22 hours according to the IRS and if you’re a business you could take 32 hours! Along with that if you mess up you find your mistake then start from there again which could take another few hours. That is a long time and that’s because the tax code is so complicated and its easier just to hire someone to do them for you then doing it all yourself. Since the code is so complicated there is tax evasion so not to cause yourself a headache (How long should it take to do my taxes).

In 2012 when the affordable care act came out it added another entire layer to the tax which is a complete disaster for average Americans. Now with the new addition to the tax code it adds, it’s the latest layer of complexity the tax code was extended 24 pages just for the ACA overview and has 19 pages for a guide of the penalties and 71 pages for the credits guide. This drives most people to tax practitioners or some professional to do their taxes which costs around $258 for an individual return. But this isn’t foolproof either, A 2014 investigation by the Government accountability office of 19 paid tax preparers found that most of them calculated incorrect refund amounts on sample returns (Our complicated tax code is crippling America).

In the code there is also a 37-page long guide to the earned income tax credit and the rules and regulations are so difficult to understand that the credits error rate is 27%, according to the IRS. That amounts to $18 billion of mistakes every year for just this one credit (Our complicated tax code is crippling America). Lost money isn’t the only effect of the complicated tax code but also the amount of time it takes to do all the taxes for individuals and businesses amounts to, 6.1 billion hours, which equals to $168 billion in lost man hours.

The people because of this, don’t trust that they pay a fair amount on their taxes. In a survey they found that 73% believe that the wealthy use means to avoid taxes that are unavailable to the not as wealthy. In 2012 the Taxpayer Advocate Service conducted a national survey of over 3,300 taxpayers who operate businesses as sole proprietors. And only 16% said they believe the tax laws are fair, and only 12% said they believe taxpayers pay their fair share of taxes. This is an extraordinary lack of trust in the system which is our tax code and it needs to be fixed so the average taxpayer and citizen believe they are doing something worthwhile and believe the government is using it to do things for them (Fishman on complicated impractical tax code).

Even some things that Congress passes to help taxpayers achieve a lower tax debt, it just adds complexity to the code which is already complicated enough. For example, The earned income tax credit. In 2004 Congress made this credit for low income folks to be less confusing. They adopted a uniform definition of a qualifying child. But the EITC still has all sort of complicated definitions, rules and calculations. This provides a burden on the low-income folks it was designed to help with (Novak).

Along with that for your federal tax return you must fill out a form 1040A which is the simplified version of the 1040 form. However, the short instructions for the 1040A now is 85 pages long and that’s one page longer than the 1040 form 7 years ago (Reynolds).

There are good parts in the tax code like section 179. In the very beginning the section only let you deduce a modest $10,000 a year for a full deduction. However, this soon started changing drastically starting in 2007 when it popped up to $125,000. The point being to let businesses write off more on their taxes, so they stay in the plus through the tough times of their business like when their expanding. Essentially pushing companies to buy more new equipment to write it off with this section in the tax code up to $500,000 instead of deducting it a bit every year. The government passed stimulus acts for every year, adjusted for inflation every year and continued to expand the section. Prior to the initial Stimulus Act in 2008, Section 179 allowed for businesses to expense up to $125,000 on qualifying equipment – and the deduction began to phase out for companies that spent over $500,000, truly making it a small business tax incentive. At that time, Section 179 was slated to wind down in future years with reduced deduction limits. And eventually, Section 179 was to be eliminated completely. However, over the last few years Section 179 has got much attention and gone through numerous enhancements by multiple Stimulus Acts designed to give businesses of all sizes incentive to invest in themselves by purchasing, financing or leasing new equipment and software. This helped companies in the fact that their equipment would be very cheap comparatively and their businesses profits boomed (section 179). But this good thing in which you could deduct everything other than buildings, land and other immovable objects for small business, is not something that outweighs all the negatives put in place by an overly complicated tax code (“Sign your approval for section 179” both, Fishman on section 179).

Solution

The solution to a 75,000 page, overly complicated tax code is a lot of tax cuts. Its either that or rewriting the entire code. Cutting the tax code requires consent from your constituents and from congress to approve it. However even cutting very few pieces of it will cause conflict between constituents because we all want to keep all our benefits but the benefits that we don’t use we are willing to throw out. For example, no rich man or woman care about the EITC which is for low income folks. They would want that cut and scholarship deductions cut because they don’t necessarily care about that (because their rich). However, if someone were to cut the estate tax they wouldn’t be too happy because they would lose a lot of money when trying to inherit something. We also want business to follow the law, so we disallow business deductions for fines paid. We also want to promote charitable acts, so we have charity deductions (Erb).