LETTER FROM NOLA ~ WINTER / SPRING 2005
As tax season progresses here at Wilken & Company, P.C., we become acutely aware of the mind-numbing burden of tax compliance that our clients must bear.
Toward the end of 2004, two major pieces of tax legislation were enacted, one being the most major overhaul of the corporate tax system in twenty years. This legislation, named in classic euphemistic fashion, the "American Jobs Creation Act", was passed on a weekend and signed stealthily by the President just days before the election in a process called cynical, even by Washington standards, by the few pundits who care about such things anymore.
As you may have noticed, little media attention is paid to our tax system, leaving most individuals with the impression that nothing has changed. However, even without any legislative changes, all tax laws passed under the current regime of George W. Bush have contained phase-ins, phase-outs, and expiration dates. Why? So, that the budget numbers can appear to "balance" in some form supposedly acceptable to those who elected our representatives (this may no longer be "the people").
Those of us employed in plying the tax code to the best benefit of our clients, regardless of our political affiliations, all agree that the burden of complexity long ago reached an unacceptable level. Yet, year after year, tax law devolves at the hands of our "elected" officials.
Something must be done. Alternatives include a national sales tax, a VAT tax, and/or a "flat" income tax. The problem with all of these ideas is that important tax and financial concepts that many of us hold near and dear would have to be chucked.
For example, under the scenario of a national sales tax, all Americans who have been socking away the maximum amount into their retirement plans and IRAs will look like geniuses. Likewise, anyone who did a Roth conversion will look like an idiot. This is because, under a national sales tax, income isn't taxed, but expenses are. Thus, all retirement plans would suddenly become "tax-free", while all those who paid taxes on Roth conversions never needed to.
With no income tax, how would those who work for a living pay their social security taxes? Probably in a way similar to how those who are self-employed currently pay, but with one glitch: if there were no longer any definitions for gross income and allowable deductions, how would one go about measuring their "earned" income for purposes of paying social security taxes?
This is just one of the many problems with attempting to implement a tax on spending, after we have had nearly a century of a tax on income. But, with the crushing burden of complexity, alternatives to our current tax system are worth considering.
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