Deductions versus Credits, Part I
Deductions versus Credits, Part II
Deductions versus Credits, Part III
And I have even written about the Flat Tax proposals - which are little more than political posturing, as there is no chance in hell of them ever passing Congress.
To the novice it seems all so confusing and daunting. And part of this is by design. As a friend of mine who worked at the IRS told me, the two greatest weapons they have in their arsenal are withholding and the unnatural fear people have of the IRS.
Horror stories about the IRS are spread by people who blatantly cheated on their taxes - they pooh-pooh their own malfeasance and then postulate the IRS was "unreasonable" by assessing penalties. The agency doesn't bother to refute these stories. If people are scared of the IRS, it makes their job easier to some extent.
It would be a huge blow to homeowners who were counting on a home mortgage interest deduction.
A lot of poor people would end up destitute. A lot of rich people would have their taxes cut nearly in half.
But the reality is, "deductions" are there for a reason, as are marginal rates. And speaking of which, our highest marginal rate is about 39.5% which sounds like a lot, but is less than the 50% my Dad paid, or the 90% people paid during the Eisenhower era. Our tax system is already pretty generous, compared to other industrialized countries. I am not sure making it "flat" makes it any better - it just gives the top earners a big bonus, and takes away money from the bottom.
As for complexity of the system, again for the average wage-earner, filling out a 1040 is not all that hard. And you can, for a modest fee, use websites like TurboTax to calculate and file your taxes. The problem, I think, that people have is that there is this vague uncertainty in the back of their minds that they are paying too much in taxes as compared to their neighbor - or that they are paying too little and will be audited. It is a matter of uncertainty and fear at work.
Calculating the exact amount owed is not an exact science. No two accountants will come up with the same tax bill, except in very simple cases (in which you don't need an accountant). Even the IRS rounds off anything under a dollar these days. They are not so concerned that you overpaid or underpaid by $100 than that you failed to disclosed $100,000 in income. And in fact, things like the "standard deduction" are really nothing more than a Scientific Wild-Assed Guess as to how much you pay in sales taxes and other taxes, to deduct from your income. And the "personal exemption"? A totally made-up number.
To be sure, when your finances get complicated, you may need an accountant. When I was running my practice and had two Subchapter-S corps to file papers on, it was a lot easier to have an accountant to handle payroll, quarterly filings, and annual returns. I realized quite quickly how much a pain-in-the-ass it was to be an employer and got out of the game. Today, my taxes are much simpler, although chasing down 1099 forms can be a pain. But it is not all that hard to do my taxes on Turbotax.
So the "complexity" argument is somewhat specious. And it is a way that the very rich are using the poor and middle-class (who have tax anxiety and trouble filling out forms) to hoodwink them into pushing for a tax system that blatantly favors the very rich.
And for what? Because filling out government forms is hard?
Flat Tax = Flat Earth. Makes about as much sense.