The Jan Tax Plan
After two weeks of political conventions I thought I’d know a whole lot more about the tax plans for the Republicans and Democrats. Oh, I’ve heard some high minded ideal stuff—but not much in the way of nuts and bolts. If you’d like to do a comparison, you can check out the Tax Foundation’s website to see how they compare and how they compare to the Simpson Bowles plan too: http://taxfoundation.org/article/romney-obama-simpson-bowles-how-do-tax-reform-plans-stack
But since Romney and Obama didn’t give me what I wanted to hear, I decided to make up my own tax plan. To be honest, it’s more of a reflection of problems that I see with tax returns that I actually work on but these are the top changes that I would make if I were in charge.
1. Earned Income Tax Credit: First I’d reduce EIC payouts by 10% per year until it’s reduced by 30%. In order to claim EIC for a child, you’d be required to produce the child’s report card with passing grade. Why the cuts and why the extra requirements? First, the EIC credit is so high right now that it encourages fraud. Currently, the IRS estimates that between $12 to $14 billion dollars of EIC fraud occur every year. If the payout wasn’t so high, the temptation for fraud wouldn’t be so great.
The extra requirements would help ensure that the kids in our communities get a better education. Everybody gives lip service to more education, and parental involvement is key to kids succeeding in school. Well, if your kid is required to pass school in order to get the Earned Income Tax Credit, I think we’d have a whole lot of parental involvement. No report card, no money.
If the child is too young to attend school, a current immunization record would be required. It’s proof that the child is getting proper medical treatment.
One more thing on EIC—if a person is caught fraudulently claiming a child on his/her tax return, the penalty, besides paying back the tax, should be never being able to claim EIC again. Ever! I work with a lot of the EIC fraud victims, I think they’d really like that rule.
2. Self-employment income: If you receive 1099 MISCs and the total amount is less than $4,000—you should have the option to elect to count that as “hobby” income instead of automatically being taxed as self employment. Currently, if you receive a 1099 MISC, it’s counted as self employment and taxed an extra 13.3% on top of your regular taxes. For someone like me, that’s fine. I own my business, I write of my expenses—it’s the way it works. For many people, they have no clue they’re considered self employed. The small amount of income is a hobby or not a real business. $4,000 to me seems to be the break point between hobbyists and business owners.
I say, that if you elect to claim the income as “not self employment” then you can’t write off expenses. If you elect to claim that you’re in a business, you can’t go back later and call it a hobby in later years. That keeps people from jumping back and forth.
3. The Alternative Minimum Tax: This one is my pet peeve. The AMT adjustment was set in 1969 and hasn’t been adjusted. Right now, Congress basically votes for a “patch” every year. Why they wait until December to do it is beyond me. I say that we should adjust the AMT threshold for inflation and automatically adjust it every year to correspond to the rate of inflation. Normal people can’t plan their taxes without knowing about AMT. The fact that this has been going on for so long is ridiculous.
I could probably go on and on but these are my top three. What would you change if you could fix the tax code?