As we close out 2014 and set our sights on an even more prosperous 2015, I think the entire country deserves a raise. I’m not talking about raising hourly pay at McDonald’s or pushing for a higher minimum wage; in fact, I’m not discussing the income side of the ledger at all.
The quickest way to get a raise is to lower your expenses, and I have one particular expense in mind — taxes. In 2015 the U.S. Congress should finally get serious about attacking the idiocy that is the U.S. tax code, streamlining the system and lowering rates across the board.
Retiring Oklahoma Senator Tom Coburn has done Americans a great service by compiling a primer on the tax code called Tax Decoder that can be downloaded from his website, www.coburn.senate.gov.
The report reveals the lunacy that we deal with every day…
Finding the Tax Deductions
Currently, the U.S. tax code runs more than four million words and fills more than 9,000 pages. This is just the code itself; it does not include the many regulations and rulings that must be referenced to interpret the tax code.
Individuals spend more than six billion hours per year preparing their taxes, roughly the same number of hours that would be necessary to employ three million people full-time. The National Federation of Independent Business estimates that the cost of tax compliance for small firms, at an estimated $18 billion per year, is 67% more than for large companies.
Of course we know why so much time and money is spent on tax compliance — it’s complicated and it favors those who have the money to seek out all of the possible deductions and credits.
For those willing to look, a tax deduction or credit probably is available. Forget the easy stuff like mortgage interest deductions or child-care credits. How about writing off gambling losses?
In 2011 taxpayers wrote off $4.8 billion in gambling losses.
Want to drive a fancy car? Leave behind the Maserati or Porsche and buy a Tesla instead. Not only is the $100,000 car cool, but it also comes with a hefty subsidy from the U.S. government, which totaled $143 million in 2012 for electric vehicles.
Farmers have always had a good deal when it comes to the tax code, and in some respects rightfully so. Their livelihood can fluctuate dramatically from year to year, so providing flexibility in the tax code and additional support like crop insurance can make sense.
But sometimes things get carried away. Currently farmers and other businesses that lose money can count their losses against profits made in previous years. This is called a tax-loss carryback and has the effect of providing the tax filer with a refund for the overpayment of taxes in the previous years, because the profit for those years has been reduced.
For most businesses the carryback period is two years, whereas for farmers it’s five years — but the favoritism doesn’t stop there. Farming losses in the current year can be used to offset profits earned by the farmer from any source of earned income in the previous five years. That’s pretty generous.
Believe It or Not
If you’re a sports fan, you might have noticed the renovation of Fenway Park, the baseball field where the Boston Red Sox play. Because the site is deemed an historic location, taxpayers provided $10 million in tax credits toward the makeover.
If sports aren’t your gig, then you might have seen the renovation of the famous Fontainebleau Resort in Miami Beach, which cost taxpayers $60 million in tax credits. For couch potatoes, the most obvious nonsensical tax break is the deduction provided to Hollywood.
Film and TV productions that pay at least 75% of their compensation in the U.S. qualify for tax deductions of $15 million per production. For television programs, the first 44 episodes of a series are each considered separate productions and therefore qualify for the tax deductions individually.
If all of this makes you shake your head, you’re not alone. It seems the agents for the IRS are just as frustrated by the complexity of it all. Despite employing more than 40,000 people and spending over $10 billion, the IRS estimates that it fails to collect $500 billion of taxes due every year.
To put this in perspective, the U.S. deficit for 2014 was approximately $480 billion. If we just collected what was due, the deficit would be erased.
Which leads me back to getting a raise in 2015…
If the tax code was simplified, then taxpayers could spend less on tax preparation and the IRS could better enforce the code. One would hope that simplification and streamlining would also cut out many of the deductions that favor specific groups (like gamblers and Hollywood) but provide no benefit to the nation. If the code was simpler and contained fewer deductions, then rates could be lowered for all levels of income.
This is a New Year’s wish that should make everyone’s list… unless, of course, you are a Tesla-driving Hollywood producer who owns part of an historic landmark and farms as a hobby but is very bad at gambling.
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