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Tax Reform Plans Just More Junk Politics

Tax Reform Plans Just More Junk Politics

By    |   Sunday, 10 January 2016 09:27 PM

All the tax reform plans proposed as part of this election cycle’s hype are nothing more than junk politics.

Tax reform plans and proposals always look enticing for the moment as if there is real substance.  For those being crushed by the income tax system, each plan promises to bring you your dreams of relief from the unremitting pain of taxation.

The professional political industry knows that emotion not substance wins the election. They know there isn’t s a single potential voter going actually to read the details of the plan.

What these plans are selling are hope and change.

Like all the thousands of previous tax reform plans, proposals, reports, whitepapers, articles, and position papers, when the current pomp and circumstance of the 2016 election is over, these too will be dumped like other junk into the wastebin of history.

It’s all understandable. Why might you ask?

Because, the current income tax system is simply not reformable.

It suffers from a fundamental flaw. Because of this fundamental flaw all the other substantive and procedural horrors of the income tax law suffered by the taxpayers and the tax administrators just naturally flow.

What is this fundamental flaw?

It’s this.  There is no definition of income.  Nobody knows what it means.

The 16th Amendment to the Constitution gave Congress the power to collect tax on “…income, from whatever source derived.”

The Income Tax Act 1913 as passed didn’t define income. It finessed the problem by giving fifteen examples of items in gross income.

That meager list was open-ended leaving it for later politicians to figure it all out. 

The result is an income tax code that takes 79,000 pages (and still growing every year) to describe whether an item is identifiable as income, and then recognized as current, exempt, excluded or deferred.  Even with that, every little thing involving tax is still controversial and contentious for the taxpayers and the government.

Figuring this out is difficult stuff. Complexity comes on fast. Let me give you an example.

Say there are five people in a partnership and the partnership receives interest income. 

Depending on the facts and circumstances of each partner, the interest can be taxable in the respective partner’s income tax return in 5 ways.

After income comes the same mind-numbing complexity dealing with deductions. 

Don’t even get me started when it comes to tax credits.

Having a tax system based on a theoretical economic concept that cannot be defined results in a tax law dependent on the development of a creative language that otherwise would be unknown among civilized, educated people. 

Congress likes this situation since it gives the unhampered ability to control who gets benefits and who gets punished and the unstoppable mechanism to make it happen. The power to tax is an awesome power.  

Congress is not likely to give up its power without either being forced by a taxpayer uprising or the States having a constitutional convention.  Realistically, this great leap forward is not going to happen anytime soon.

But a little tiny baby step may be possible.

I propose as a little nudge  (to paraphrase Cass Sunstein) down the path of tax reform
That is to have the entire existing tax code subject to the Plain Writing Act of 2010. 

It requires that regulations be written in plain language and easy to understand. Seems to me that if easy to understand language is good for regulations, it should be good to use for the legislation on which the regulations are based.

The Plain Writing Act passed easily through Congress and was promptly signed by the president.

Until that happens, I think it’s enough for us to realize and recognize (just like income) that all the tax reform proposals touted by all the candidates for the presidency or another political office will never reform the income tax system.

It is all just more junk politics.

Denis Kleinfeld is known as a strategic tax and wealth protection lawyer, widely published author and creative teacher. To read more of his articles, CLICK HERE NOW.

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All the tax reform plans proposed as part of this election cycle's hype are nothing more than junk politics.
Tax, Reform, junk, Politics
Sunday, 10 January 2016 09:27 PM
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