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Benjamin Culkin

English 102 TR 11-12:15

Rough Draft of Research Paper

Dr. Barko

April 28th, 2015

Simplify Our Burdens

April 15th, a day feared by many, and rightly so, for it is Tax Day, the day we must settle

our accounts with the IRS, and they are very exacting about it. Sure, by filing with the IRS you

may receive money back from them, but humans are very reluctant to let something leave our

possession. Indeed, even if we knew we could obtain an entire kingdom by selling our last nail,

we would still be reluctant to do so. However, how should this problem be resolved? The

obvious answer is to completely do away with the IRS, but the obvious problems with the

obvious answer are so obvious that it is never brought up in serious conversation. The main issue

with this solution is that the government needs money to provide its citizens with the services

they desire. Instead, the most often proposed solution is to overhaul the tax code in some way,

but this is not a easy problem. Compounding its difficulty is the shear impenetrability of the tax

code, a sheer thirteen and a half thousand pages of intermixed legalese and tables. This does not

even account for the complexity of the forms that must be filed to execute the body of this

document. Indeed, the tax code must be simplified to a single percentage, because the current

incarnation is unusable to the majority of Americans who cant afford expensive accountants.

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What is wrong with having accountants? Nothing. There is nothing wrong with the

profession of accounting, but when the average CPA (Certified Public Accountant) is paid $30.55

per hour (Accountants n.pag) and the IRS estimates the average non-business person spends

about eight hours filing taxes (Disclosure n.pag), that is a decent chunk of change. Especially

since, according to another report from the BLS (Bureau of Labor Statistics), the average

American made roughly twenty-five dollars an hour.

Simplifying the tax code is not a new proposal, and something many agree needs to

happen, but the exact way to go about it seems to be the sticking point that prevents one unified

effort at reform. This leads to a split in the ranks between those who would rather work within

the confines of the tax code to fix it or those who would scrap it and start over. On the side of

work with the confines of the tax, we have as an example H.R 4646, proposed during the

second session of the 111th Congress of the United States by Rep. Chaka Fattah of Pa, titled as

the Debt Free America Act (Debt Free 1) whose purpose is established as [a bill to]

establish a fee on most transactions (Debt Free 2.B). It then goes on to expedite several points

on how this is different from a sales tax (a transaction fee would be applied to all users of a

product, not just end users), a VAT (Value Added Tax, commonly used in European countries,

and it differs in applying to all of a transaction, not just the difference between cost and sale

price) as well as stating it is intended to eliminate the national debt ($10.6 trillion at the time of

the bills writing) as well as finance the removal of the federal income tax (Debt Free 2.B 1-3)

One of the most prominent alternatives on the other side of the scale, scrap it and start

over, is the FairTax which would replace a vast majority of all the taxes paid with the equivalent

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of a single sales tax on all goods and services purchased. The initial proposed amount is roughly

twenty-three percent, but calculations peg that as more equivalent to a thirty percent normal sales

tax (Regnier n.pag). This would be adjusted yearly by a formula that is based on the amount of

money taken in last year, to ensure that it keeps up with inflation and the overall economy. They

also propose that the US government sends a prebate to every American for the amount of tax

they pay on spending up to the poverty line (Regnier n.pag). Today, for a family of three

people (mother, father and child) that would be roughly $390 dollars a month (because according

to the United States Secretary for Planning and Evaluation the poverty line is slightly above

twenty-thousand dollars yearly, so divide that by twelve and multiply it 23% to get there)(2015

Poverty n.pag)

However, neither of these plans have ever made it out of the committees they were

proposed to, which means they were flawed enough to not really be granted the chance.

Therefore, an alternative must be proposed. I do not believe that a simple patching up of the

holes in the tax code would suffice to make it significantly simpler, because not only are there

more holes than a sieve in the tax code, no minor modification would be able to stop people from

putting more holes into it. This leaves us with a total reform of the system which, while the

likelihood of such a thing happening is less, it would solve enough problems that it would be

worth the effort.

The most radical simplification possible is to that of a single flat percentage, indexed to

inflation, but this isnt ideal as people who make less than average will pay more than their fair

share, and those who make more than the average would pay less than their fair share. The next

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step up in complexity, but also in fairness would be a staggered percentage, very similar to how

the income tax works currently. The only main difference is that the way the income tax is setup

is that you pay a flat amount that is approximately equal to the amount the person at the right end

of the previous level would pay and a percentage of all income above that level (See Table. 1 and

Eqs. 1 and 2).

Table 1. Income Tax owed by a single, unmarried individual (Excerpt of United States 1.C)

(22,100 * .15) = 3,315 and (((53,500 - 22,100) * 22,100) + 3,315) = 12,017

Eqs 1 and 2. Calculation of Flat amount owed using data from Table 1

Another small difference, is that the flat amounts in Table 1 are tied to the CPI (Consumer Price

index) and adjusted yearly so as to prevent inflation from causing your tax burden to increase.

However, without allowing inflation to cause an increase in taxation, how will the government

keep up with inflation.

There is one more minor aspect that is different, and that is that you would only have one

percentage applied to you. None of the X + X% of excess over X sort of thing would apply, it

would simply be If you make up to $X yearly, you owe X% of that amount in taxes. The main

impact of this change would be that the more money you make, the more you end up being taxed

on it, without regard to how close you come to the threshold. The inherent issue with such a

If Taxable Income Is Tax Owed Is

Not over $22,100 15% of Taxable Income

$22,100 to $53,500 $3,315 plus 28% percent of excess over $22,100

$53,500 to $115,000 $12,017 plus 31% of excess over $53,500

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policy however, is that it would be unfair to precisely those people who hit the threshold. Using

just the percentages from Table 1, a one dollar difference in salary could mean the difference

between owing $3,315 and $6,188, an almost doubling of tax burden.

The two potential solutions to this issue are to use the excess over an amount the way the

IRS does it, or to use a gradated percentage. A gradated percentage would be the most accurate

and elegant, meaning that someone would made between $22,100 and $53,500 would pay a tax

of somewhere between 15% and 28% percentage points. The issue with this approach however,

is that such a formula to calculate a gradated percentage would likely be complicated enough that

the simplicity gained from such an approach would be outweighed. This leaves the stepped

percentage with what I will call retention, only paying tax up to a percentage for each amount,

with the percentage increasing at designated points.

This however, raises the obvious question of what to do about tax-exemptness, and all of

the various credits and such attached to our current system? I am not idealistic enough to believe

that such things would not be attached to any replacing system, but I am willing to say that

instead of letting them be stuck hodgepodge everywhere, there should be a designated

mechanism inbuilt into the law to attach to it. For the proposed system, this would be in three

places, namely: A) The calculation of taxable income, B) The percentage owned on said income

and C) The total amount of money owed. As an example of the first, we have the rules on life

insurance from the IRC (Internal Revenue Code also called US Title 26) which say gross

income does not include amounts received (whether in a single sum or otherwise) under a life

insurance contract, if such amounts are paid by reason of the death of the insured. (United

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States 101.A.1) Of course this is somewhat specific, and has a couple of exclusions thatve been

excluded, but such a thing would simply be applied to the gross amount of income made. As an

example, say you made $54,000 last year, but $2,000 of that was the result of life insurance

payments for the death of your cousin. That means you would consider your income as $52,000

dollars as far as the government is concerned.

However, no solution to a problem is a magic bullet, and this leaves the somewhat

obvious question of how this would apply to businesses. The shortest answer I can provide is

Im not sure. A slightly longer answer would be Im not sure because Im not a business

accountant. For the short term, we could keep businesses bound to many of the same shackles

as they are now, but this is not a satisfactory long-term solution. A possible solution to some of

these problems would be to say that income from a business that does not file independently of

its owners would be that that income is put in a separate pool and taxed with a different set of

brackets. Whether this would be applied to a businesses gross or net profits is an undecided

problem, one that might not be easy to answer. On the bright side though, things like tax-exempt

status for non-profits and tax credits of various kinds would work exactly the same way as they

would for persons. This still leaves the issue of sin taxes, but the only possible way to solve that

is to say any income derived from these sources is counted as 1.2x larger than its actual value.

Another issue is, since taxes would be indexed to inflation, would this not lead to issues

where a persons income stays stagnant and thus their amount of owed taxes increases yearly?

Yes, it would, and the easiest solution to this problem is even less likely to happen than a reform

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of the tax system of a whole. That is, the idea that the income of people should be indexed to

inflation.

Taxes are as essential to our country as they are to any country, but our current system for

filing and paying taxes is over-complicated to an extreme. There have been multiple attempts to

reform it over the years, but none of them have succeeded. However, just because something has

failed in the past, does not mean it will fail in the future, which leads to a proposal that we switch

to a single staggered percentage tax. Like any solution to any problem, it has its problems, but

none of these problems are inherent to the way it is structured, so they may all be resolved,

allowing for the simplification of the tax code, making April 15th just another day.

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Works Cited

2015 Poverty Guidelines. Office of the Assistant Secretary for Planning and Evaluation, 22

January 2015. Web. aspe.hhs.com. 24 Apr. 2014

"Accountants And Auditors." Occupational Outlook Handbook. U.S. Bureau of Labor Statistics,

n.d. Web. bls.gov. 24 Apr. 2015.

Debt Free America Act, H.R. 4646, 111th Cong. (2010). Print.

Disclosure, Privacy Act, and Paperwork Reduction Act Notice IRS Notices. U.S. Internal

Revenue Service, n.d. Web. irs.gov. 24 Apr. 2015

Regnier, Pat. Just How Fair is the FairTax?. Money Magazine. CNN, 7 Sept. 2005. Web.

money.cnn.com. 24 April 2015

United States Internal Revenue Service. Title 26 - Internal Revenue Code U.S. Code. United

States Government, 19 Dec 2014. Print.