Is the move to a simple tax filing really beneficial to the average taxpayer or is it another example of how the little guy is getting taken for a ride again by the federal government? Our tax code is huge and complex. It runs over 90,000 pages. It starts with Statutes (Title 26 of the U.S. Code) in two volumes covering 2,652 pages. Next we have Statutes and Regulations of roughly 4 million words. With an average 450 words per page, that comes out to around 9,000 pages. Next we have Statutes, Regulations, and Case Law that easily comes in at another 70,000 pages. Since 1940, the number of pages in the IRS Tax Code has gone from 5,000 to over 90,000 pages.
There is no doubt that the complexity is much heavier in the business sector than for individual taxpayers, but I suspect that in these thousands of pages, there are many tax breaks that small and large businesses take advantage of every time they file their returns. Just understanding the complexity of Section 179 regarding the rules and regulations affecting depreciation on new and used equipment is daunting. There is a Spending Cap before Section 179 deduction available to your company as well as a 50% Bonus Depreciation for 2016 alone. Section 179 requires special forms and even has its own website.
Why then do I not trust the politicians in Washington when they stand up and tell us that they will solve all our problems by simplifying our submission of the Form 1040 by eliminating all the deductions we presently claim except, for now, charitable giving and mortgage interest? If it is this simple, then why is our tax code 90,000 pages long? Why has the IRS not done something like this years ago? I suspect that the simplification of the Federal Tax return will make it easier for the average tax payer to file his or her return but I think that it will have nothing to do with changing the requirements of businesses and corporations in the submission of their taxes and may have little or no impact on the taxes or lack of payment of said taxes paid by these same large and small companies.
What the Government should do is reform the whole tax structure and not just John and Mary Smith’s portion on their annual 1040. The corporate share of federal tax revenue went from 32% in 1952 to 10% in 2013. From 2008 to 2013, General Electric, Boeing, Verizon and 23 other profitable Fortune 500 firms paid no federal income taxes! The top statutory tax rate for corporations is 35% but the average effective tax rate, the actual tax rate paid after deductions and credits, amounts to just 19.4%. U.S. corporations dodge $90 billion dollars a year in income taxes by shifting profits to subsidiaries that are often no more than post office boxes in tax havens. U.S. corporations officially hold $1.2 trillion in profits offshore. General Electric received $3.1 billion dollars in tax refunds on $27.5 billion dollars in profits during a 5 year period. The company paid less in federal taxes in five years than a single American family pays in one year.
My advice is to listen carefully to what the politicians are proposing and ask a lot of questions. The shifting numbers go from increasing the amount of the “standard” deduction that could be available on the Standard Form 1040 to moving and shifting of deductions on the subsequent pages in the Long Form 1040 such as health care, interest, property taxes, etc. But is this tax reform or just tax simplification for John Doe? I suspect it is a simple case of tax simplification and I question the so-called phantom “tax savings.”