On Tuesday (Tax Day), John McCain announced his idea for
how to simplify the tax filings for mllions of people.
Finally, a workable idea!!! His idea is quite simple and
would solve many problems. For those of you who didn't hear
about it, here it is in a nutshell.
Create an alternative tax that is optional (not mandatory
like the AMT). The alternative tax would be a flat tax,
with two tax rates, a generous standard deduction, and
nothing else. Taxpayers would have the choice of filing
under the regular tax system or the alternative system.
This solves many problems without creating the remarkable
complexity that comes from a consumption tax (e.g.,
national sales tax) or other "flat tax" proposals. Because
you have a choice, you would be able to take the complex
route of the regular tax, using a firm like ProVision to
handle your tax filing. If, on the other hand, simplicity
is most important to you, you can simply use the flat tax
and file a postcard-type return.
What I like about this proposal is that it should eliminate
many of the complainers about the current system being too
complex. They would have the opportunity to use the simple
form. At the same time, it's not a massive overhaul of the
current system and so is politically doable, as no one
loses. It should allow the IRS to reduce it's audit staff
(especially office audits). Finally, it allows the
government to continue using the tax system to encourage
investment in real estate and business. (Personally, I'm
not sure I care whether the government uses the tax system
for economic, social and energy policy. The government sure
seems to like it, though.)
The only downside I can see is that it would take the
pressure off the government to do a massive overhaul of the
current system. At this point in history, though, it seems
almost impossible to undo decades of complicating the tax
system. The tax system is woven throughout our entire
economy. So I think that Mr. McCain's proposal is a very
good step in the right direction.
One other aspect of John McCain's proposal that I really
like. With a flat tax, any time the government wanted to
raise or lower taxes, it would be very obvious, since it
would have to include a rate change or a change to the
standard deduction. It couldn't be hidden like the haircuts
we have on Schedule A (itemized deductions) or the income
limits on certain tax benefits or the alternative minimum
tax.
There are still many issues that would have to be ironed
out, such as which income is taxable, but let's give Mr.
McCain a round of applause for coming up with a reasonable
step in the right direction towards tax filing simplicity
for the average, middle-class American.
Warmest regards,
Tom
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Tom Wheelwright is not only the founder and CEO of
Provision, but he is the creative force behind Provision
Wealth Strategists. In addition to his management
responsibilities, Tom likes to coach clients on wealth,
business, and tax strategies. Along with his frequent
seminars on such strategies, Tom is an adjunct professor in
the Masters of Tax program at Arizona State University. For
more information, please visit
http://www.provisionwealth.com
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