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Queen of Mean had it right: Only the little people pay taxes
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Billionaire hotel heiress Leona Helmsley once bragged “only the little people pay taxes.”
The so-called “Queen of Mean” was convicted in 1989 for income tax evasion for failing to pay $4 million due Uncle Sam. She ended up serving 21 months of a four-year prison term and paid $8 million in fines and back taxes.
Too bad she wasn’t nominated for Secretary of the Treasury. She could have skipped jail and the fines by simply paying the back taxes and saying taxes were “too confusing”.
What makes the latest round of revelations regarding high-profile Washington political tax cheats even more grating is that they didn’t fess up until all eyes were upon them. How can any elected leader in 2009 say they didn’t know they had to pay the infamous “nanny tax” after dozens of others before them – political insiders and celebrities – have been nailed for the same thing? As for Tom Daschle and not knowing that the gift of free limo service didn’t have to be reported, can someone ask if he ever bothered to read instructions for a 1040 form? It isn’t a confusing point. It’s clear. You don’t need a tax attorney on that one unless, of course, you’d like to split hairs to try and get out of the obligation.
One would hope the men and women who make our nation’s laws – including those governing the IRS – as well as spend the money they collect for the federal government would have the decency to try and not play fast and loose with the tax laws.
And if it is so confusing that they don’t understand it, then perhaps they should devote their energies into making it less confusing.
It would be nice if someone in Congress made an effort to simplify the tax system – at least for individuals.
It is going to be tough to wean off some things such as interest deductions for mortgages but it is quite possible to grandfather them in. It may be a tad complicated at first. You could set a year – say 2011 - where no one could no longer take deductions although taxpayers should be permitted to carry out deductions already started whether it was pro-rated under the original law or based on a contractual deal such as buying a home.
You would also put in a new tax rate that doesn’t worry about deductions. You then put a tax rate mechanism in place that lets everyone have their first $15,000 free of federal taxes. It would then be followed by a tiered approach with something along the line of a 15 percent rate for $15,001 to $40,000, a 20 percent rate for $40,001 to $60,000, a 25 percent rate for $60,001 to $100,000, and a 30 percent rate for $100,001. The 30 percent rate would only be on income above $100,001 while the rest of the income would be taxed differently at certain points. The guy making $120,000 would still pay just 15 percent on his income between $15,001 and $40,000 and so forth with only that beyond $100,001 taxed at the highest rate.
It eliminates the nasty IRS brackets where if you cross from one to the next all of your income is subject to the higher tax rate.
Yes, there are arguments that are what exemptions and deductions do but it is hardly fair if you rent to be forced to pay more in income tax just because the government wants to encourage home ownership.
And if you really wanted to reduce fraud – at least on the part of individuals – then simply jettison individual income tax in favor of a consumption tax on all goods. A 10 percent federal value added or consumption tax sounds like a lot but it isn’t. When you add state and local taxes plus all the hidden taxes you pay for the companies that make various products you buy, the odds are things will still come out the same if it is done right.
The big difference is there will be no need for a thick instruction booklet or administrative law judge rulings. Instead, it will be straightforward.
If people opt to save, they won’t be taxed on the interest. Instead they would only pay taxes when they buy consumer goods.
Either plan should be simple enough for even Tom Daschle whose grasp of the taxing system he helped expand and perpetuate is a bit lacking.