Strategies for Simplifying the U.S. Tax Code and Enhancing Compliance
The complexity of the U.S. tax code can be overwhelming for both individual taxpayers and small businesses. While it's true that simplifying the tax code may not be an immediate or trivial task, there are several strategies that can help streamline the tax process and make it more accessible to the average American. This article explores some of the ideas that can lead to a more simplified and efficient tax system.
Automated IRS Services for Taxpayers
One effective method to simplify the tax code is to have the IRS provide automated services for taxpayers. This approach involves sending every taxpayer a detailed letter that outlines their taxable income, standard deductions, taxes already paid, and any additional tax owed. For most taxpayers, this would mean a straightforward process of agreeing or disputing the information and paying any remaining taxes. If taxpayers disagree, they would need to fill out and submit detailed tax forms.
Tax Simplification in the Digital Age
For taxpayers dealing with the intricacies of cryptocurrency taxation, companies like TurboTax and QuickBooks offer robust solutions. These accounting solutions provide an easy-to-use platform for tracking and calculating gains and losses. By using such tools, individuals can gain clear insights into how to manage their tax obligations, making the process significantly less daunting.
Focus on the Most Impactful Areas
When considering tax code simplification, it's crucial to prioritize areas that touch the lives of the widest range of taxpayers. Programs like the Earned Income Tax Credit (EITC) play a vital role in supporting low and lower-middle-income individuals, especially those with families. While the EITC adds complexity to the tax process, it is essential to ensure that any simplification efforts do not detract from its value.
Properly Fund the IRS
Another key strategy to simplify the tax code is to properly fund the IRS. Historically, the IRS has been underfunded, leading to a lack of resources for both taxpayers and the agency itself. By removing political interference and ensuring that the IRS has the necessary funding, it can provide better assistance to taxpayers and invest in education and more efficient systems. A well-funded IRS can also improve tax collection and reduce the burden on both taxpayers and the agency.
Automated Tax Filing and Processing
To address the major challenge of tax automation, the IRS can take on the responsibility of processing tax filings, much like many other organizations. By doing so, the IRS can ensure that the vast majority of taxpayers (around 70-80%) can simply submit their taxes and receive their refunds or payments without the need for extensive manual filing. This would significantly reduce the complexity of the tax system and make the process more straightforward for individuals.
Eliminating Complex Tax Policies
Some tax policies, particularly those that benefit high-earners and are often exploited by tax lawyers, contribute to the overall complexity of the tax code. One such policy is the preferential tax rate on capital gains. This has led to a significant shift in how income is reported and taxed, with many individuals now relying on capital gains and capital options to avoid higher income tax rates. Eliminating this policy not only simplifies the tax code but also promotes more equitable taxation.
Supporting State and Local Tax Systems
Finally, the IRS can help states and localities set up efficient tax collection systems, which can further simplify the tax code. By partnering with these smaller tax authorities, the IRS can share best practices and support the development of streamlined tax systems. This collaboration can make the tax process more accessible and less burdensome for taxpayers across the country.
In conclusion, while the task of simplifying the U.S. tax code is complex and multifaceted, the strategies outlined above can help make the process more manageable for both taxpayers and tax authorities. By focusing on areas that impact the largest number of taxpayers, properly funding the IRS, and leveraging technology, we can create a more efficient and equitable tax system.