I'm self employed and had to explain to my kids why taxes in the US were so complicated and took hours to do over the weekend.
There must be powerful forces at work because Republicans have touted a flat tax or a return the size of a postcard for decades but when they controlled all three branches of government couldn't get anywhere near enough votes to pass it.
It's truly an abysmal system and I hope my kids don't have to do a giant math problem every year when they're adults.
> There must be powerful forces at work because Republicans have touted a flat tax or a return the size of a postcard for decades but when they controlled all three branches of government couldn't get anywhere near enough votes to pass it
They don't actually try to pass a flat tax because it is not feasible to actually do a flat tax in a country like they US with such a wide range of incomes. Even with a low rate, there will be people poor enough that paying the tax is a major hardship. So every even remotely serious "flat" tax proposal has some cutoff and only applies to income above that cutoff.
But then it is not actually a flat tax. It is a progressive tax with two brackets. Once you get there, it is really hard to come up with a convincing argument that two brackets is better than more brackets.
If the calculation wouldn't mystify most taxpayers, what would probably be the most sound theoretically would be a continuous bracket structure.
The other reason they don't do it is that the flatness of the rate structure has pretty much nothing whatsoever to do with the complexity of a tax return. If you changed the rate structure from a progressive rate with several brackets to an actual flat rate, or a more realistic two bracket progressive system, that would shave about 1/4 of a page off the several thousand pages of the tax code and tax regulations.
The complexity of it is all in figuring out which income is taxable. Once you've got all the income classified into the various relevant tax categories, the actual calculations where you use the rate structure is trivial.
Every flat tax proposal comes with a Negative Income Tax portion to counter regressitivity. People misunderstand what flat tax proposals are all about.
With a tiered tax system, individuals need to be the ones who pay taxes because people who combine income from multiple sources need to pay differing amounts of taxes. With a flat tax system, all income is treated exactly the same so governments can switch to collecting income taxes from corporations. Corporations basically report the amount they spend on payroll every year and pay some percentage of that as a tax to the government. Then the government takes some portion of that money and remits it back to individuals as a negative income tax (essentially a UBI).
Flat tax changes the way money flows, instead of company -> individual -> government, it goes company -> government -> individual. It's both easier to tax corporations than individuals and easier to give money to citizens than take money from citizens. These two powerful benefits alone are meant to make up for the severe rigidity and lack of flexibility that flat tax systems intrinsically have. It's an open question whether these two things are enough to make up for all the flat tax flaws but I don't think there's an obvious right or wrong answer that we've discovered yet.
It's an open question whether anything would change between a company giving you $12/hr and a company giving you $8/hr and the government giving you (the equivalent of) $4/hr as a monthly lump sum.
Income from non-salary sources aren't generally covered by flat tax proposals because they're so complex and the existing tax system would still exist to deal with them. However, for the vast majority of citizens, salary is their only source of income and their experience with the government becomes "how much can I convince the government to give to me" rather than "how do I try to avoid the government from taking from me".
The republicans haven't bragged about it, but I'm guessing limiting SALT deductions to way below the standard deduction will drastically reduce the number of filers itemizing deductions. That leaves you with form 1040 which is roughly half a page front and back, not much bigger than a postcard. Certainly, if you have capital gains or other things, you'll need extra schedules, and maybe you need to send w-2s, so it's not necessarily their ideal, but it's actually a large change.
Not as of tax year 2018. SALT deduction is capped at $10k, standard deduction for married filing joint is $24k. I don't think you can get $14k worth of deductible mortgage interest, but I guess maybe. If you're filing single with a mortgage, it seems more likely to end up with itemized, still.
> I don't think you can get $14k worth of deductible mortgage interest
Sure you can. Even with the new $750k cap, and if you assume a (very low; chances are it's higher by a factor of 1.5 or 2) rate of 2%, you can get to $15k.
If you assume a 4% rate, then you get to $14k with a $350k mortgage. In various coastal-metro markets that's basically an entry-level house.
The other common itemized deduction is charitable contributions. Unfortunately, I see lots of "average" data for those, when what would be most useful here is median data: the average is presumably heavily skewed by wealthier or higher-income taxpayers. But as an anecdote, I know multiple people who drop $20 in the collection plate every week when they go to church; that's ~$1k right there.
Thanks -- I hadn't done the math, and was mostly grumpy about my mortgage interest + SALT not being enough. No significant charitable donations this year, I bunched up with a DAF in tax year 2017 for several reasons.
Yeah, i only deducted housing, and state, ended up with around 18k in deductions, and my mortgage is signifacntly less than even ops numbers. Its people with double or triple the average housing prices who are hurting, because hcol areas are let out.
Do you think that this change will be a precursor to getting rid of the mortgage interest deduction altogether? By making it so that most people no longer benefit from it, there should be little opposition from throwing it out.
Seems like probably it's on the way out; they reduced the eligible mortgage balance from $1m to $750k too. Limiting it while rates are still lowish also reduces the amount of impact. I expect some of this is feeding back into housing prices by now, though; so maybe expect some push back.
They did, technically. The Form 1040 this year is only half a page. However, many people need to attach at least one schedule, which is just the rest of the form broken up into multiple pages. It's less of a dramatic change and more of a weird format shuffling.
A flat tax will never happen: people want the tax code to have a bunch of deductions and rebates, and codifying those will always result in complexity.
There must be powerful forces at work because Republicans have touted a flat tax or a return the size of a postcard for decades but when they controlled all three branches of government couldn't get anywhere near enough votes to pass it.
It's truly an abysmal system and I hope my kids don't have to do a giant math problem every year when they're adults.