by | ARTICLES, IRS, TAXES
IRS Commissioner Danny Werfel published a letter yesterday in which he suggested that there may be racial bias in the selection of tax returns for audit. In fact, he stressed that, “while there is a need for further research, our initial findings support the conclusion that Black taxpayers may be audited at higher rates than would be expected given their share of the population.” This is far and away the most ridiculous nonsense to come out of the IRS in a while and Commissioner Werfel is either economically ignorant or intentionally misleading.
IRS audits have nothing to do about being black or white; even the IRS itself says they do not know the race of the taxpayer when selecting returns for audit and there is no place on a tax form to denote race when submitting a return to the IRS. Therefore there can be no bias in the algorithm, which is a sophisticated analysis designed to show where taxpayer error occurs.
The problem Mr. Werfel apparently is alluding to relates to the Earned Income Tax Credit (EITC). Congress made the EITC calculations very complicated but also too easy to cheat. It is simply the case that low income taxpayers claiming the EITC statistically have a large error rate, running upwards of 50% per year, which leaves the IRS no alternative but to inquire further via the audit process. Furthermore, improper refunds involving EITC easily amount to billions each year. So those claiming the EITC are either making mistakes or are scamming the system. But whichever it is, it is the EITC calculation on the tax returns of low-income people that triggers the algorithm, not race whatsoever.
Commissioner Werfle is a moron. By even hinting that there is racial disparity in the audit system (that can’t even consider race a factor, mind you) shows a mind-boggling level of incompetence and stupidity. How can a person this woefully inept be in charge of the IRS?
by | BLOG, IRS
The Internal Revenue Service is inept to such a degree that it could rightly be called criminal. The problems go beyond the numerous cited issues, such as only answering 10% of taxpayer calls or a backlog of 21 million unprocessed tax returns. The Treasury Inspector General for Tax Administration (Tigta) 2017 report stated that the IRS took to seizing property from its targets before even conducting interviews. Tigta also reports that even when interviews were conducted, the IRS failed to advise the accused of their rights or the interview’s purpose and to consider “realistic defenses or explanations.” Tigta found that “most” of those targeted (owners of gas stations, jewelry stores, scrap-metal dealers, restaurants) had not committed crimes, though many were never able to regain their property. The IRS is engaged in theft on a scale, not of thousands or millions, but billions of dollars. The IRS is rotten to the bone and giving them more funding will only exacerbate the corruption.
The nine most terrifying words in the English language are: “I’m from the Government, and I’m here to help.” A conglomerate of heavy government hitters, including Sen. Joe Manchin, Majority Leader Chuck Schumer, and last but not least, President Joe Biden, have come together to unleash what they call “beast mode” executive power. The bill would increase by 600x the current annual IRS budget over ten years from $12.6 billion to $80 billion. Let’s not mince words. Despite this President’s claims, the IRS will not be targeting the 1%; they will be targeting middle-class Americans and small business owners like they always have. The Joint Committee on Taxation, Congress’s official tax scorekeeper, says that 78% to 90% of the money raised from under-reported income would likely come from those making less than $200,000 a year. Only 4% to 9% would come from those making more than $500,000. This is because the middle-class is ill-prepared to defend themselves; the IRS knows that wealthy individuals have the funds available to hire accountants and lawyers to put up a fight. But even those who fight do not go unscathed as there is a tremendous cost to defense, so even those who “successfully” defend themselves are out roughly the $200 to $400 per hour they pay their tax attorney. Like a bully picking on the smallest kid on the playground, the IRS comes after the electrician, firefighter, supermarket worker, and small business owner. Like the Government, the IRS is not your friend and will undoubtedly fail to solve this country’s money problems.
by | ARTICLES, BLOG, IRS
You have the Editorial Board at the WSJ taking the IRS to task. The following article outlines numerous problems listed in multiple agency audits, and yet Congress is still eager to give the IRS an extra $80 billion. I’ve reprinted it below.
The new Inflation Reduction Act has many damaging provisions, but for sheer government gall the $80 billion reward to the Internal Revenue Service stands out. The money will go to hire 87,000 new employees, doubling its current payroll. This is also doubling down on incompetence, as anyone can see in the official reports of the Treasury Inspector General for Tax Administration (Tigta).
We’ve read those reports for the last several years so you don’t have to, and the experience is a government version of finding yourself in a blighted neighborhood for the first time. You can’t believe it’s that bad. The trouble goes beyond the oft-cited failures like answering only 10% of taxpayer calls, or a backlog of 17 million unprocessed tax returns. The audits reveal an agency that can’t do its basic job well but will terrorize taxpayers whether deserving or not.
***
Consider the agency’s chronic mishandling of tax credits. By the IRS’s own admission, some $19 billion—or 28%—of earned-income tax credit payments in fiscal 2021 were “improper.” The amount hasn’t improved despite years of IRS promises to do better.
• A January Tigta audit found that an estimated 67,000 claims—totaling $15.6 billion—for the low-income housing tax credit from 2015 to 2019 “lacked or did not match supporting documentation due to potential reporting errors or noncompliance.”
• A May audit found that 26% ($1.9 billion) of its American opportunity tax credits for education expenses were improper in fiscal 2021, and 27% ($541 million) of its net premium tax credits (ObamaCare) were improper in fiscal 2019 (the most recent year it estimated). The same May audit said the IRS acknowledged that 13% ($5.2 billion) of its enhanced child tax credit payments were improper.
• How did it handle $1,200 stimulus checks, the sick and paid family leave credit, or the employee retention tax credit? Unknown, since the agency didn’t estimate failure rates—for which Tigta rapped its knuckles.
• A September 2021 audit found the IRS in 2020 issued 89,338 notices to taxpayers insisting that “balances were owed even though the taxes were not actually due.” Why? Because the feds had extended the filing deadline amid Covid but the IRS apparently didn’t notice.
• A February audit found the IRS department responsible for ensuring retirement-plan tax compliance suffered a 23% decline in the quality of its examinations from fiscal 2018 to fiscal 2020. In the past seven months, Tigta has issued searing reports on IRS mismanagement of everything from its partial-payment program for delinquent taxpayers, to its auditing of partnerships, to its struggle to handle internal employee misconduct.
• This ineptitude extends to programs Democrats insist will now raise revenue—those targeting higher earners. In 2010 Congress passed the Foreign Account Tax Compliance Act, which was supposed to identify wealthy Americans using undisclosed foreign accounts. Congress’s Joint Committee on Taxation said this would raise some $9 billion in revenue by fiscal 2020. Yet an April Tigta audit noted that while the IRS has spent $574 million to implement the law, the agency has drummed up only $14 million in compliance revenue.
• A July 2021 audit related the failure of the IRS small-business/self-employed division’s strategy, which began in 2010 to examine more returns from “high-income individual taxpayers.” The IRS defines high earners as those with income greater than $200,000. Yet from fiscal 2015 to the end of fiscal 2017 (when the strategy was shut down), 73% of returns targeted by the strategy fell below $200,000.
Democrats say a turbocharged IRS won’t pursue taxpayers earning less than $400,000, but don’t believe it. Middle-income Americans are easier marks, as they are more likely to write a check than engage in years of costly litigation.
***
The Tigta site shows the IRS is good at one thing: punishing those who resist its demands. A March audit chastised the IRS for using lien foreclosure suits to confiscate “principal residences” from delinquent taxpayers, a process that does “not provide [taxpayers] the same legal protections as seizures.”
A March 2017 report related the agency’s crackdown on businesses flagged as potentially evading a law that requires financial institutions to report currency transactions exceeding $10,000. The IRS took to seizing property from its targets before even conducting interviews. Tigta reports that even when interviews were conducted, the IRS failed to advise the accused of their rights or the purpose of the interview, and failed to consider “realistic defenses or explanations.” Tigta found that “most” of those targeted (owners of gas stations, jewelry stores, scrap-metal dealers, restaurants) had not committed crimes, though many were never able to regain their property.
This is the IRS that Democrats are now arming with more money and manpower to unleash on Americans. The $80 billion is a demonstration of their priorities, and further proof of the rule that failure in government is invariably rewarded with a bigger budget.
by | ARTICLES, BLOG, ECONOMY, IRS, TAXES
Mike Hiltzik’ s article, “Proof the IRS targets the poor for tax audits while leaving millionaires alone” is either economically ignorant or intentionally misleading. He asserts that the IRS disproportionately audits lower income households for some biased reason, but that is simply not the case. Hiltzik takes his data from a non-profit called TRAC which reviews IRS reports that are generated as part of an ongoing FOIA request.
Hiltzik ignores the fact that the IRS audits taxpayers based upon sophisticated analyses that tell them where the taxpayer errors are. It is simply the case that low income taxpayers claiming the complex earned income and other credits have a huge error rate – leaving the IRS no alternative but to go after them. He even complains that 82% of those audited claimed the Earned Income Tax Credit (EITC) – ignoring that error rates on these tax returns are around 50%, and improper refunds involving EITC claims is more than $17 billion each year. Hiltzik goes so far to state that “pursuing low-income taxpayers won’t do anything to close the tax gap,” nearly suggesting that low-income earners shouldn’t be audited at all – though anyone can see that the combination of erroneous credit claims, and the also quite common situation of people claiming low income because of work in the underground economy are significant contributors to the tax gap.
Even though higher-income tax returns would seem to have more money to go after, they are most often either 1) relatively straightforward, with full statutory tax rates being paid, or 2) complex requiring services of qualified tax professionals who are quite competent to see that the letter of the law is being followed. It’s egregious that Hiltzik claims, with no evidence whatsoever, “the rich keep more of the money they owe to the federal government.” He misconstrues this audit data as part of his screed against millionaires and billionaires by offering the tired old trope about them not paying their fair share; in reality, roughly 57% of U.S. households paid no federal income taxes for 2021. How is that actually fair?
by | ARTICLES, BLOG, CONSTITUTION, FREEDOM, GOVERNMENT, IRS, TAXES
The State Department, in tandem with the IRS, has stepped up enforcement of an Obama-era law that blocks Americans with ‘seriously delinquent’ tax debt from receiving new passports — and will, at some point — be allowed to rescind existing passports of people who fall into that category.”
The roots of this law began back in 2012, when a report issued by the GAO suggested the possibility of tying tax collection to passport issuance, in an effort to collect revenue. Soon thereafter, Senator Harry Reid introduced a bill in Congress that did just that, with a threshold of $50,000 in delinquency. The bill had been attempted several times in Congress over the last few years before finally being passed in late 2015; it was quietly tucked into a highway-funding bill (HR22).
Though there are exceptions to the rule (emergency and humanitarian travel, for instance), valid criticisms of the rule were raised. For instance the law isn’t limited to criminal tax cases or even situations where the government fears you are fleeing a tax debt; your passport can now get revoked merely because you owe more than $50,000 and the IRS has filed a notice of lien. Yet a $50,000 tax debt is easy to amass today and tax liens are pretty standard. The IRS files tax liens routinely when you owe taxes. It’s the IRS’ way of putting creditors on notice so the IRS eventually gets paid; the Joint Committee on Taxation estimated that the new law would raise about $400 million over the next decade.
A serious problem, however, looms for millions of U.S. citizens living abroad. Passports, obviously, are essential for travel, residency permits, banking, school, and work visas; yet, the IRS has documented trouble with getting mail properly to expats.
Furthermore, National Taxpayer Advocate Nina Olson, say the notices to debtors often come at the same time the State Department is notified of the taxpayer’s debt, in some cases leaving not enough time to resolve tax issues before passport problems occur.
None of that seems to matter to the IRS, which has reported that 220 people have turned over $11.5 million to repay their full debts as of late June, while 1,400 others had set up payment plans to reduce their debts. Essentially, more than 350,000 Americans face passport denial when applying or renewing, with little to no recourse for an agency plagued with problems.
by | ARTICLES, BLOG, GOVERNMENT, HYPOCRISY, IRS, TAXES
A few years ago, it was revealed that thousand of IRS employees who were in non-compliance with the IRS — or had actually committed tax fraud — had received bonuses from the agency. The IRS had promised to place safeguards or closer scrutiny to ensure that such employees who had not done due diligence with their taxes would not receive bonuses in the future. However, a new Treasury Inspector General for Tax Administration (TIGTA) report reveals that only about a third have been caught by the additional screening. “The IRS is still paying bonuses to nearly 2,000 bad employees, including more than two dozen who were actual tax-cheats themselves.”
From the Washington Times:
“The IRS understands the importance of withholding awards from employees whose conduct is deemed to impact the integrity of the service, and/or who have a tax compliance issue, regardless of the level of discipline imposed,” wrote Katherine M. Coffman, a “human capital officer” at the agency, in the IRS’s official response.
She agreed with all three recommendations for fixing the problem, but said they won’t be done until next January. Among those getting bonuses were two employees who illegally snooped on others’ tax returns.Two other employees sexually assaulted colleagues, yet were paid nearly $1,500 in combined bonuses, the audit found.
The inspector general said the agency only screened for people who were disciplined enough to serve at least a one day suspension. Investigators said the agency didn’t screen people who had tax problems but weren’t suspended. That included three employees who received a combined $7,000 in bonuses despite having $65,000 in outstanding tax balances deemed impossible to collect by the agency. Paying those bonuses broke the law, the investigators said.
In a statement after the report, the IRS said the examples were “unacceptable” but said it’s taken steps to try to get a handle on things since the last audit. “This continues to be a priority for us, and we will continue to make improvements going forward,” the agency said.”
The IRS continues to be an abomination, even five years after the scandal that targeted certain non-profit groups in 2013. It is outrageous that taxpayer money is appropriated to those who have not fulfilled their basic tax obligations.
by | IRS
IRS Announces 2018 Tax Filing Season Opens with April 17 Deadline; 155 Million Tax Returns Projected, 70 Percent Expect Refunds
IRS YouTube Videos: Claiming EITC or ACTC? Your Refund May Be Delayed— English | Spanish
WASHINGTON — Marking the beginning of the nation’s tax season, the Internal Revenue Service said today that it successfully started accepting and processing 2017 federal individual income tax returns. More than 155 million returns are expected to be filed this year.
People have until Tuesday, April 17, 2018, to file their 2017 returns and pay any taxes due. The filing tax deadline is later this year due to several factors. The usual April 15 deadline falls on Sunday this year, which would normally give taxpayers until at least the following Monday. However, Emancipation Day, a Washington, D.C., holiday, is observed on Monday, April 16, giving taxpayers nationwide an additional day to file. By law, Washington holidays impact tax deadlines for everyone in the same way federal holidays do. Taxpayers requesting an extension will have until Monday, Oct. 15, 2018, to file.
The IRS expects more than 70 percent of taxpayers to get tax refunds this year. Last year, nearly 112 million refunds were issued, with an average refund of $2,895.
“The IRS has a number of ways to help taxpayers this filing season, and we encourage people to look into the many options available,” said Acting IRSCommissioner David Kautter. “The nation’s tax professionals and software community work with the IRS and help make the tax filing process easier for Americans. Today’s filing season kick-off reflects many months of hard work by the nation’s tax community and IRS employees. And we also appreciate the time and attention taxpayers take as they prepare and file their taxes.”
Use e-File and Free File
The IRS expects about 90 percent of returns to be filed electronically. Choosing e-file and direct deposit remains the fastest and safest way to file an accurate income tax return and receive a refund.
The IRS Free File program, available at IRS.gov, gives eligible taxpayers a dozen options for brand-name products. Free File is a partnership with commercial partners offering free brand-name software to about 100 million individuals and families with incomes of $66,000 or less. About 70 percent of the nation’s taxpayers are eligible for IRS Free File. People who earned more than $66,000 may use Free File Fillable Forms, the electronic version of IRSpaper forms.
Refunds in 2018: More than 90 Percent in Less than 21 days; EITC/ACTC Refunds Starting Feb. 27
The IRS issues more than nine out of 10 refunds in less than 21 days. However, it’s possible a tax return may require additional review and take longer. “Where’s My Refund?” has the most up to date information available about refunds. The tool is updated no more than once a day, so taxpayers don’t need to check more often.
The IRS also notes that refunds cannot be issued before mid-February for tax returns that claim the Earned Income Tax Credit or the Additional Child Tax Credit. This applies to the entire refund — even the portion not associated with the EITC and ACTC. While the IRS will process the EITC and ACTC returns when received, these refunds cannot be issued before mid-February. The IRSexpects the earliest EITC/ACTC related refunds to be available in taxpayer bank accounts or on debit cards starting on Feb. 27, 2018, if they chose direct deposit and there are no other issues with the tax return.
“Where’s My Refund?” on IRS.gov and the IRS2Go mobile app remain the best way to check the status of a refund. “Where’s My Refund?” will be updated with projected deposit dates for most early EITC and ACTC refund filers Feb. 17, so those filers will not see a refund date on “Where’s My Refund?” or through their software packages until then. The IRS, tax preparers and tax software will not have additional information on refund dates, so these filers should not contact or call about refunds before the end of February.
This law change gives the IRS more time to detect and prevent fraud. Even with the EITC and ACTC refunds and the additional security safeguards, the IRS still expects to issue more than nine out of 10 refunds in less than 21 days. However, it’s possible a particular tax return may require additional review and take longer. Taxpayers are reminded that state tax agencies have their own refund processing timeframes that vary, and some states may make additional reviews to ensure their refunds are being issued properly. Even so, taxpayers and tax return preparers should file when they’re ready. For those who usually file early in the year and are ready to file a complete and accurate return, there is no need to wait to file.
Free Tax Help
Low- and moderate-income taxpayers can get help filing their tax return for free. More than 90,000 volunteers around the country can help people correctly complete their return.
To get this help, taxpayers can visit one of the more than 12,000 community-based tax help sites that participate in the Volunteer Income Tax Assistance and Tax Counseling for the Elderly programs. To find the nearest site, use the VITA/TCE Site Locator on IRS.gov or the IRS2Go mobile app.
Filing Assistance
No matter who prepares a federal tax return, by signing the return, the taxpayer becomes legally responsible for the accuracy of all information included. IRS.gov offers a number of tips about selecting a preparer and information about national tax professional groups.
The IRS urges all taxpayers to make sure they have all their year-end statements in hand before filing. This includes Forms W-2 from employers and Forms 1099 from banks and other payers. Doing so will help avoid refund delays and the need to file an amended return.
Online tools
The IRS reminds taxpayers they have a variety of options to get help filing and preparing their tax return on IRS.gov, the official IRS website. Taxpayers can find answers to their tax questions and resolve tax issues online. The Let Us Help You page helps answer most tax questions, and the IRS Services Guidelinks to these and other IRS services.
Taxpayers can go to IRS.gov/account to securely access information about their federal tax account. They can view the amount they owe, pay online or set up an online payment agreement; access their tax records online; review the past 18 months of payment history; and view key tax return information for the current year as filed. Visit IRS.gov/secureaccess to review the required identity authentication process.
The IRS urges taxpayers to take advantage of the many tools and other resources available on IRS.gov. IRS phone lines will be busy again this year, so to save time, people should first visit the IRS website for tax assistance.
The IRS continues to work with state tax authorities and the tax industry to address tax-related identity theft and refund fraud. As part of the Security Summit effort, stronger protections for taxpayers and the nation’s tax system are in effect for the 2018 tax filing season.
The new measures attack tax-related identity theft from multiple sides. Many changes will be invisible to taxpayers but will help the IRS, states and the tax industry provide new protections. New security requirements will better protect tax software accounts and personal information.
Renew ITIN to Avoid Refund Delays
Many Individual Taxpayer Identification Numbers (ITINs) expired on Dec. 31, 2017. This includes any ITIN not used on a tax return at least once in the past three years. Also, any ITIN with middle digits of 70, 71, 72 or 80 (Example: 9NN-70-NNNN or 9NN-80-NNNN) is now expired. ITINs that have middle digits 78 or 79 expired Dec. 31, 2016, but taxpayers can still renew them. Affected taxpayers should act soon to avoid refund delays and possible loss of eligibility for some key tax benefits until the ITIN is renewed. An ITIN is used by anyone who has tax-filing or payment obligations under U.S. tax law but is not eligible for a Social Security number.
It can take up to 11 weeks to process a complete and accurate ITIN renewal application. For that reason, the IRS urges anyone with an expired ITIN needing to file a tax return this tax season to submit their ITIN renewal application soon.
Sign and Validate Electronically Filed Tax Returns
All taxpayers should keep a copy of their tax return. Some taxpayers using a tax filing software product for the first time may need their Adjusted Gross Income (AGI) amount from their prior-year tax return to verify their identity.
Taxpayers using the same tax software they used last year will not need to enter their prior year information to electronically sign their 2017 tax return. Taxpayers can learn more about how to verify their identity and electronically sign tax returns at Validating Your Electronically Filed Tax Return.
by | ARTICLES, BLOG, FREEDOM, GOVERNMENT, IRS, LAW, TAXES
We need to eliminate the AMT from the tax code entirely. Here’s why:
The Alternative Minimum Tax (“AMT”) presents hardships to the practitioner as well as the taxpayer who prepares his own return by, as its name implies, imposing a second tax calculation mechanism on taxpayers. It serves virtually no useful purpose, other than the raising of an ever-increasing amount of tax revenue. But it has become very clear in recent years that this AMT tax revenue is not coming from just the taxpayers who were the intended targets of this tax.
The AMT was instituted in its present form when the prior “add on” Minimum Tax was transformed into the AMT in the early 1980’s. Its stated purpose was to require that all taxpayers paid at least a fair share of tax. It was to do this by identifying “loophole” type deductions, also known as “preferences”. There would then be an alternative calculation using lower tax rates applied against this taxable income as increased by the preferences. Whichever of the taxes is higher is the one the taxpayer must pay.
However the AMT was seriously flawed from the outset. Instead of focusing on these loophole type preferences (which would have limited the tax to a very small number of tax law “abusers”), the law that was passed included items that were not loopholes at all. A convoluted formula compares the differences between income and deductions to determine who falls under the guidelines.
A very substantial majority of all AMT paid by taxpayers results from the following four factors:
- Treating state and local taxes as a preference
- Treating miscellaneous deductions as a preference
- Allowing lower exemptions than the regular tax.
Each of these, however, can be quickly shown as inappropriate factors with which to base a tax system intended to just make sure everyone pays a “fair share” of tax.
- State and local taxes are hardly a loophole. The taxes exacted by state and local governments are hardly “voluntarily” paid by taxpayers in an attempt to avoid paying federal taxes.
- Miscellaneous deductions is the category of deductions that consists primarily of expenses incurred to earn income that is subject to tax. It includes unreimbursed employee expenses, investment expenses, etc. This is the most basic and important deduction needed to have a truly fair income tax system. For example, if an individual pays a lawyer a fee for collecting back wages, the legal fee is a miscellaneous deduction. If an individual pays the lawyer $300 for collecting $1000 of back pay, netting $700, the AMT would tax the individual on the full $1000.
- The exemption available under the AMT tax system is a fixed dollar amount which, unlike exemptions and standard deductions under the regular tax system, is not indexed for inflation. Furthermore, it is phased out entirely over certain income levels. And each year Congress has to approve an annual “patch”, which raises the threshold for inflation, in order to raise the exemption limits of the tax so that less wealthy taxpayers won’t be subject to the AMT.
The AMT in its present form has no place in tax law. The AMT does not serve the purpose for which it was intended and functions in a most inequitable manner while adding enormous compliance burdens. It should therefore be changed to eliminate the adjustments for state and local taxes and miscellaneous deductions, update its rates, and modify its exemption — or else the AMT needs to be eliminated completely.
by | ARTICLES, BLOG, GOVERNMENT, IRS, LAW, POLITICS, TAXES
The Democrats have continuously claimed that they are looking out for America’s middle class by keeping the tax rates the same for them while seeking to raise rates on the wealthiest Americans who need to “pay their fair share”. This assertions serves to deflect attention away from the one policy that is already the mechanism for ensuring that the wealthiest pay more. What is it? The AMT.
The Alternative Minimum Tax (AMT) currently serves virtually no useful purpose, other than the raising of an ever-increasing amount of tax revenue. The AMT was instituted in its present form when the prior “add on” Minimum Tax was transformed into the AMT in the early 1980’s. Its stated purpose was to require that all taxpayers paid at least a “fair share of tax”. Yet it has become very clear in recent years that this AMT tax revenue is not coming from just the taxpayers who were the intended targets of this tax.
The AMT was developed to identify “loophole” type deductions, also known as “preferences”. There would then be an alternative calculation using lower tax rates applied against this taxable income as increased by the preferences. Whichever of the taxes is higher is the one the taxpayer must pay.
However the AMT was seriously flawed from the outset. Instead of focusing on these loophole type preferences (which would have limited the tax to a very small number of tax law abusers), the law that was passed included items that were not loopholes at all. A convoluted formula is used to calculate and compare the differences between income and deductions in order to determine who falls under the guidelines. Interestingly, a very substantial majority of all current AMT paid by taxpayers results from the following factors: 1) treating state and local taxes as a preference; 2) treating miscellaneous deductions as a preference; 3) allowing lower exemptions than the regular tax.
These factors have flaws. For instance, state and local taxes are hardly a loophole because taxes exacted by state and local governments are hardly “voluntarily” paid by taxpayers in an attempt to avoid paying federal taxes. Likewise, “Miscellaneous Deductions” is the category of deductions that consists primarily of expenses incurred to earn income. It often includes unreimbursed employee expenses, investment expenses, etc. This is the most basic and important deduction necessary to have a truly fair income tax system and should not be considered a loophole. Furthermore, the exemption available under the AMT is a fixed dollar amount which, unlike exemptions and standard deductions under the regular tax system, is not indexed for inflation; it is also phased out entirely over certain income levels.
During AMT discussions over the years, Congress used to posture and point to the AMT patch as some major revenue loss (had the AMT been applied to those families) as an excuse to raise to raise taxes in order to offset this “potential missing tax revenue”. Once the “patch” became permanent and the higher exemption level kept many taxpayers from being hit with the AMT, Congress stopped talking about the AMT altogether. But the fact still remains that there is a parallel tax system already that goes after the highest income-earners; they already pay “their fair share” — and then some
by | ARTICLES, BLOG, FREEDOM, IRS, LAW, RETIREMENT, SOCIAL SECURITY, TAXES
Whenever tax reform, tax packages, or tax changes get discussed and debated, the focus is always on “the middle class.” While this sounds noble, the reality is that the middle class already pays very little in taxes. The majority of the middle class “tax bill” is actually Social Security — which is not truly a tax.
For example, my son made about $35,000 last year. He paid $1,500 in income tax and $4,500 in Social Security. But contributions to the Social Security system should not be viewed as a tax — it is effectively a forced retirement payment. Pundits and lawmakers need to stop calling Social Security payments a tax, and need to stop including Social Security payments in their tax equations because it does not operate as a tax.
I strongly believe that with some tweaks to the Social Security system that make the benefits more tied to contributions and allow for some ownership of the underlying assets, we can get people to view those payments in a positive light – investing for their future. When you remove the Social Security line item from the amount of tax liability, you see that the lower and middle classes have a very low income tax liability.
