More Flat Tax Drivel

So here we go again – yet another round of talk about the wonders of the “flat tax.”

            For how many decades has this one been kicked around?  Since even before the heyday of Dick Armey, as we recall.  So here comes Rep. Mike Pence (R-IN), who’s probably not only running for president, but also heralding the arrival of a Republican controlled House, and proclaiming that one of its missions will be a push for a simpler tax code.  “There is one system that meets all of these criteria,” notes Pence.  “I believe it is time that America adopted a flat tax and scrapped the current system once and for all.”

            Nice.  Makes good copy.  But we’re still waiting for somebody to please explain to us how the mere fact that there is only one or two tax rate brackets simplifies anything!  The issue isn’t how many brackets there are – the real issue is the myriad of definitional complications embedded within the Internal Revenue Code.

            Take a simple one – what, exactly, is gross income (to which the “flat tax rate” would be applied)?  Obviously, wages are a common form of same – and pretty much everybody understands what wages are.  That’s easy.  But take, f’rinstance, the presently ubiquitous problem of foreclosure income, cancellation of indebtedness income, gains from “short sales” of real estate.  One could almost make a career of understanding the rules governing these deals – how income in each case is determined and measured.   That, my friends, is the complexity which implementation by the stroke of a pen of a single “flat tax” rate doesn’t even begin to address.  And don’t hold your breath awaiting an answer to this question from any of the politician gasbags who want you to think the “flat tax” is the answer to your prayers.

            And while we’re on the subject, we were thoroughly unimpressed, last week, by the report of the president’s “National Commission on Fiscal Responsibility and Reform” which, by the way, couldn’t even garner the support of three fourths of the Commission’s membership!

            Yes, the report calls for lower rates, fewer deductions and credits in the name of tax simplification, noting that the current Code is “hopelessly confusing and complicated.”  But we’re left cold trying to understand how the following, among others, provides anything in the nature of tax simplification:

-Elimination of all itemized deductions, including one of the most sacred of all cows, the   home mortgage deduction

            -Taxation of capital gains at ordinary income tax rates

            -Taxation of municipal bond income (Now won’t the states all just love that one!)

            – And the beat goes on…………

            Just another commission, chosen by yet another sissy politician who doesn’t

want to make his own decisions, and who will inevitably just point the finger and pass the buck when the next time comes to raise taxes.  (“It’s not my fault – don’t ya’ know that the Commission told me it has to be done….”)

CONSULT YOUR TAX ADVISOR – This article contains general information about various tax matters.  You should consult your CPA regarding the implications to your own particular situation.

            Jeff Quinn, the author of this article, is a shareholder in Ashley Quinn, CPAs and Consultants, Ltd., with offices in Incline Village and Reno.  He is also a contributor to the 13th edition of Tax Savvy for Small Business, published by Nolo.  He can be reached at 831-7288, and welcomes comments below.

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