Taxes on a postcard? Uh, no, thank you.

Last updated on: April 16, 2015 at 7:16 am by Jane the Actuary

Taxes on a postcard? Uh, no, thank you. 2015-04-16T07:16:53-06:00 Jane the Actuary

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That’s Ted Cruz’s proposal:

Imagine a simple flat tax that lets every American fill out his or her taxes on a postcard.

and, as reported at cbsnews.com, it’s tied to his vision of a flat tax.

Now, I’d earlier said that a flat tax is not a particularly worthy goal. Even in the days of tax tables rather than tax software, it wasn’t a big deal to look up your income range on a table to see what the tax was — and, as I recall, once you exceeded a certain level of income, you were then given the instruction to apply the relevant marginal percent to your total income less the income in the last row of the table. And there is a good reason for graduated tax rates — the greater ability of the wealthy to shoulder a disproportionate part of the tax burden is real, and appeals to simplicity aren’t sufficient to counter this, especially since, in order to minimize the burden on the poor, flat tax proponents need to offer credits and other benefits for low-income taxpayers anyway.

Of course, I’m all for simplifying taxes by reducing the sorts of deductions one can take, but not because it simplifies taxes; instead, I support reducing deductions where those deductions distort the economy (e.g., the home mortgage deduction artificially raising the cost of housing) or are simply unfair by picking winners and losers. But the Schedule A is not especially complicated. It’s not that hard to calculate the interest paid on your mortgage, or the property taxes you paid. Yes, it’s more work to add up your charitable deductions (and provides too much opportunity for unethical exaggerations of the value of in-kind donations), or your medical expenses (if you have enough medical expenses for this to apply), but each of these takes up a single line on the Schedule A itself (well, fine, each takes up four lines — for the medical expense, to calculate the 10% of income threshold, and for charitable contributions, to add together cash, in-kind, and carryover donations), which is only one page in total.

So what is it that makes taxes so hideously complicated? For us, at least, it’s when you need to calculate all the non-wage income you’ve had during the year — interest, dividends, capital gains, rental income, self-employment income, even farm income (that’s Mom and Dad, whose taxes my husband is now handling, and Dad’s inheritance from his mother and her parents before her). Last year, Dad had a particularly nasty capital gains calculation when a company he owned stock in decamped to London. But unless you plan to treat capital gains and other investment related income as wholly non-taxable (which I’ve said is foolishness in the context of my criticisms of the Rubio proposal), then it is simply necessary to calculate and report this income. True, this could be simpler, if, for instance, there were not separate tax rates for short- and long-term gains. And the additional Medicare tax adds another level of complexity for people who are impacted.

Sure, I suppose you could “file taxes on a postcard” in a somewhat trivial sense, by calculating your income from these sources on separate worksheets that are just retained in case of audit, but not “showing your work” to the IRS. In that sense, this would match the approach to charitable donations, where you don’t list each donation on an IRS schedule, but just provide the total. But whether you report the individual components or only the total to the IRS, the real work is in the calculation, not the writing of a final result on a tax form.

What else adds to the complexity? Taxes are fiendishly complex if you live abroad, of course. But no one’s going to bat for them. (Maybe there should be a congressional district composed solely of citizens residing outside the country’s borders.) I’m told that the additional math for the health insurance penalty is also a mess, as well.

And there are a host of other credits and special treatments. Did you know that

Taxpayers who make cash contributions on or before April 15 to charities providing relief for the families of two slain New York City police officers can receive an immediate tax benefit by choosing to claim a charitable contribution deduction on their 2014 federal income tax returns, according to the Internal Revenue Service.

which I stumbled upon while pulling up the link for the Schedule A?

Now, some of these special credits/deductions/tax treatments are reasonable and appropriate, and others are not. But what makes them appropriate or inappropriate is not whether it impedes the goal of taxes-on-a-postcard, but whether they are just or unjust, and whether they distort the market or not.

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