U.K. attempting to simplify tax code; U.S. should do the same
Written by James Chan   
Tuesday, 20 July 2010 11:04




N
ot long after it took power, Great Britain’s Conservative party government started to act on its long-standing campaign promise to reform and simplify their complicated tax code in hopes of reducing tax error and collection costs as well as stimulate consumption and business activity. Upon reading this, I thought: why haven’t we done the same? No one can argue that our tax system doesn’t frustrate many citizens, and its complicatedness is at least partially responsible for all the complaints about being taxed so much.

Perhaps it’s from my experience being a tax filing volunteer. We were only supposed to file the most basic of tax returns, yet training took nine whole hours to complete. The presentation for the first day of training involved more than 200 slides packed with tax filing instructions. I just sat there, thinking, “how is the average person supposed to file these taxes correctly when even the basics take so long to cover?”

The main reason for the complicatedness of the tax system is the buildup from decades of tax modifications and policies. Politicians often add in a tax credit here and a deduction there to attract votes, then raise taxes in other areas to make up for the lost revenue. These additions to the tax code add up until they snowball into the huge, bureaucratic systems of requirements and percentages we see today- a problem left virtually unaddressed by the government.

So how should we go about simplifying the tax code?

First of all, work to eliminate all the “schedules” in the tax form. These are supplementary worksheets that determine how much tax you have to pay for a certain line in your 1040 tax form- your house, your earned income, capital gains, etc. Any line on the tax form that needs an additional 2-3 pages to properly work out is too burdensome. Set simpler criteria for determining eligibility and amount of tax credits, deductions, etc.

Another way is to better coordinate requirements among tax lines. One main problem with the 1040 is that a list of qualifications for “child” or “senior” for one item might be different than that of another. Many headaches will be reduced if all credits and deductions for one type of condition (medical, child, unemployment) were listed in one section, instead of spread out over multiple categories.

Finally, much can be done to reduce redundancies in our tax code. For example, there are currently two types of tax credits for education expenses, but taxpayers have to pick one based on the conditions of the expenses. Such repetitive credits should be consolidated into one credit that combines the attributes of both. This way, taxpayers can avoid having to double-check if they’ve signed up for the right kind of deduction or tax credit.

There are many other ways to improve our complicated tax code. However, the important thing to realize is that simplifying the code can have many direct beneficial effects, from reducing the chances of tax error- and therefore back taxes- to reducing the administrative work in processing tax returns. However, the biggest advantage of a simple-to-follow tax code is the headaches saved on our behalf!


(Photo: alancleaver_2000)



 
 

Comments  

 
+3 # Guest 2010-07-22 16:48
Nice try. Now just try to convince the accountants that they will lose business as the demand for their work drops. I would love to see a simpler tax code but I highly doubt it will come any time soon.
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+3 # Guest 2010-07-23 18:19
I actually prefer something like Forbes' suggestion on a flat tax or Huckabee's sales tax only policy.
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