Individual tax reform simple
One of the few things President Barack Obama and Republican leaders agree about is the need for reform of the income tax code.
Thousands of pages of tax code contain special breaks for people and corporations. The simplest individual tax forms are multipage nightmares that nobody understands.
So what should be in a new, simplified tax code? For individuals, we think there are very few basics needed on a tax form:
* There should be a standard deduction for each person covered by the form (number of people in the family times the standard deduction).
* Charitable donations should be deductible (charities and nonprofits provide many social services cheaper and more efficiently than government).
* Home mortgage interest on a primary residence should be deductible (part of the American Dream is homeownership; eliminating this deduction would put that dream out of reach for many and permanently depress the housing market).
* College loan interest should be deductible (education is so expensive – and so necessary – that this deduction should be maintained).
And that’s all. Gross income minus standard deductions minus charitable donations minus mortgage interest minus college loan interest equals taxable income.
All income should be treated equally, whether earned through wages, salary or investments. There should be very few tax categories – ranging from 0 percent for low-income families to around 25 percent for higher incomes.
Such a system would do two things immediately:
1. It would make the income tax so simple almost all of us could understand it.
2. It would forever do away with complaints of tax inequity. You make this much, this is what you pay.
It is probably too simple for Congress to ever consider it. Plus, with a system like this, you couldn’t do political favors for your friends through the tax code.
(A version of this editorial has appeared previously in The Maui News.)
* Editorials reflect the opinion of the publisher.