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April 09, 2013

Comments

Thanks, Ugh. I appreciate the objectivity. Not to change subjects--perhaps you could address this in another thread--but how difficult would it be to substantially reduce the practice of "transfer pricing" as the trade off for lowering corporate tax rates to something on the order of 15%, the idea being to (1) make US corporations actually pay tax on money earned in the US, even if at a lower rate and (2) hopefully make it less profitable to ship jobs offshore.

Thanks for the response, ugh. I suspected that was the case. But hope springs eternal, so I thought perhaps something was in progress unbeknownst to those of us far from Washington.

The low hanging fruit on simplification seems to be to have the government just mail a tax return that has already been filled out to the 90% of tax-filing individuals whose taxes are trivial to prepare. That would save everyone lots of effort and would dramatically reduce the amount of tax anxiety people experience. Too bad the TurboTax folks have vetoed that plan.

And the Ugh era begins!

The whole online filing thing is something that I'm curious about. What is the percentage of online filers in the US? Overseas, they encouraged us to start online filing by not sending the printed forms. Unfortunately , for me and most of the other people I've talked to, we have just enough things to make the system kick it out, so we fill it out online, print out the pdf and mail it in. I agree with Turb that there are savings to be had there, but the online filing infrastructure is low hanging fruit of a different kind, unfortunately.

And does anyone know why, when you fill ou tthe forms on-line, you can print them . . . but cannot save them. It seems really stupid to have to scan back in the form after you have printed it, in order to keep an electronic copy. Pointlessly stupid.

If you can print them, can't you print them directly to a PDF, rather than onto paper to then scan to create a PDF, if it's simply an electronic copy you're after, once you're done changing anything? I'm pretty sure that's what I did, but it was way back in February, so I can't be sure.

My taxes are fairly simple, even with itemizing and dependents, and I find on-line, all-electronic filing has obviated the need for TurboTax. And I did back when I still had some capital gains to deal with. But I agree with Turb's suggestion for people with tax returns even simpler than mine.

McKinney - interesting that you should mention transfer pricing as the OECD recently published this report regarding "base erosion and profit shifting," which includes addressing transfer pricing as well as certain other hybrid and arbitrage tax arrangements entered into by multi-national enterprises.

Essentially, the OECD and its members states seem to have finally awoken to what MNEs are up to in terms of, e.g., moving the ownership of highly valuable intellectual property to zero tax jurisdiction - a lot of which was enabled by the OECD/states themselves. Or perhaps, the plethora of media reports of MNEs using things like the "Double Irish with a Dutch Sandwich" to pay no or very little tax anywhere in the world (Ed Kleinbard at USC calls this stateless income, and he's essentially correct, of course, when he was at Cleary Gottlieb in NYC he was more than happy to help this process along) has finally pushed the citizens of the member states to wake up an say "WTF? Why is MNE X paying a 15% effective rate on $X billion while I pay 20% on my income?"

Unfortunately, the OECD still seems to not understand the core problem, which is respecting transactions between wholly owned or controlled subsidiaries for tax purposes in the first place. Further, as to shipping jobs offshore, the current push is to make it even more profitable to do so for many reasons (primarily, "that's what the rest of the world does so the US must do so to remain competitive!!!").

Maybe I will turn this into a separate post.

I think I agree that the IRS should just mail everyone a pre-filled in tax return based on the information reporting they've received (whether it be W-2s, 1099s, K-1s, etc.).

Objections might include: (i) it's intimidating, especially if there's "tax due"; (ii) the information reporting to the IRS will be incorrect in certain cases (e.g., the IRS simply has no idea how to match K-1s against individual returns - OTOH, if you have a K-1, you're likely able to afford filing advice); and (iii) identity theft potential.

I'll see if I can read up on the TurboTax thing.

Ugh, Why would there be a problem matching K-1s to individual returns? My K-1s always have my name and SSN on them; what more would they need? Am I missing something obvious here?

And, if I have understood the description of how the system works elsewhere, what the IRS sent would be subject to additions and corrections, from those taxpayers who have them. So even if the IRS can't match K-1s, that would amount to just one more minor edit in the provided filled-out forms.

I'm fascinated by the concept of stateless income, because I have a theory that that's what killed empires. You can get colonies, fine, but they're expensive, and for about a century now companies have not had the attachment to a state that would get them to repatriate the income to the home country, which means the home country won't have the tax revenue to support the empire. Once they started building factories overseas to service overseas markets, the writing was on the wall, and that practice goes back at least to the Model T. I'm sure the tax strategies have become more sophisticated and the importance of intellectual property has increased, but the practical effect is to undermine the states' interest in maintaining the political order.

So, if I had to put money down, I would wager that the U.S. will keep muddling through with its current Code, a great deal of which (especially for businesses) is temporary....

What, exactly, is 'temporary' about a 'great deal' of the current US tax code?

Temporary meaning it has a sunset date I believe. Or at least that's how I read it.

bobbyp - DecidedFenceSitter hit it, certain provisions expire. Depending on how you want to measure them, they can constitute "a great deal" of the Code.

What I'd like to know is, at least as individual taxes go, since I know more about them than corporate or business taxes, being an individual who has never owned a business or done any corporate tax accounting, how well can what I'll call "profiles" be applied to individuals or households based on their pre-tax incomes?

What I'm getting at is, could deductions and credits be eliminated and rates adjusted such that people's taxes would remain largely the same with a much simpler code? I'm sure there are outliers, and perhaps there could be provisions for people with unusual situations to choose between the old or new code for some period of years to adjust their affairs to avoid hardships the new code might cause them.

It just seems to me that people with similar incomes will, in general, have similar lifestyles and therefore similar tax profiles. Adjusting for things like numbers of dependents isn't particularly complicated, and I'd imagine that would account for most of the differences within income groups.

hsh, the problem is that all those complexities benefit some people, but not others. So you can't just remove them, and cut rates, and leave everybody in essentially the same position. If you cut them, you can cut rates and make most people better off -- at the expense of making some people worse off. (Whether they deserved the benefit the rest of us have been giving them is a separate discussion.)

I'm afraid that similar incomes do not actually correlate that well with similar lifestyles. Some people will be spending most of that income; others will be saving a lot. And yet others will be drawing on their savings to spend more than their income. (I've been in the latter group, while working for equity at a start-up for several years. Based on my income, I'm below the poverty line. Based on my spending, I'm living comfortably above.)

DRAT! Left off the "end italics" tag. And now it won't turn off.

Sorry

{Corrected
- Teh Editors}

It's also worth mentioning that the actual economy and financial structures/contracts/arrangements are really, really, complicated. And simplicity in the tax code most benefits those who can arrange their affairs most freely, to take advantage of the loopholes that simplicity inevitably creates.

If you cut them, you can cut rates and make most people better off -- at the expense of making some people worse off.

I get what you're saying politically, and my question is mostly academic. But, in theory, you can account for that with parallel tax regimes over some grace period during which people have time to do whatever it is they think they need to not to get wacked with a significantly higher tax bill in year one.

I'm afraid that similar incomes do not actually correlate that well with similar lifestyles. Some people will be spending most of that income; others will be saving a lot. And yet others will be drawing on their savings to spend more than their income.

Whether I save or spend doesn't really affect my taxes, aside from pre-tax retirement saving or interest income, neither of which is particularly complicated to account for. That would be something that could be figured in before you even start doing your taxes through a reporting regime, the information from which could be included in pre-filled forms from the IRS for most people. Otherwise, the IRS doesn't give a crap if I buy TVs or stuff my money into a mattress.

Ugh, correct me if I'm wrong, but I think the big variable items for many people would be (a) state taxes and (b) the home mortgage interest deduction.

ugh, What I was attempting to do was address your comment that "It just seems to me that people with similar incomes will, in general, have similar lifestyles..." Which, I belatedly realize, was focused on their having therefore similar tax profiles. (Oops.)

But you will only have similar tax profiles if you not only have eliminated most of the deductions which create complexity, but also resolved (speed the day!) that all income will be taxed identically, regardless of the source. That is, no separate rates for capital gains. No tax exempt bonds for various government entities. Etc. (Don't even get me started on "carried interest.") If we can get to "income is income is income," then we've got something.

I don't even see separate rates for different types of income as being a big deal where complexity is concerned. That can all be reported and characterized easily and placed into a pre-filled return, not to mention that capital gains and dividend income skew highly toward higher earners. You can treat all income the same up to a certain amount, beyond which non-wage income is treated differently than wage income and wage income is always considered as the first dollars earned.

I guess I just don't see the rate regime as the problem, at least not where complexity is concerned. It's all plug-and-chug. And I also guess that what you see as the order of priority of goals in simplifying the tax code will affect what you think needs to be done. I'm thinking it's mostly about people not having to spend as much money, time, thought or worry on their tax returns.

If you can make it easier to understand and more easily automated (en masse by the IRS, preferably), that's ninety-plus percent of it.

It strikes me that the impasse over 'tax simplification' is symptomatic of the political gridlock we see in other areas. After all, what is actually at stake is who gets what or whose ox gets gored.....that and actually pinning down what "income" is.

You want simplification? http://s3.amazonaws.com/hgfa/m/pdfs/hgfoa.003.pdf> Start here.

You want simplification? Start here.

There's an interestingly large fraction of that document that's dedicated to canonizing Henry George, and practically zero dedicated to laying out any fundamentals. Not that they can't be found elsewhere.

My guess would be that such a thing would be the killing stroke for longstanding single-family farms. His notion that a tax on land equates to a tax on wealth just may be overcome by events. In his day, land ownership and wealth may have been closely linked, but today there are many other places to put money other than land.

According to Wikipedia, George favored taxing unimproved land value. That being the case, my father (who is semi-retired on a small farm in Indiana) would pay more taxes than would Bill Gates.

So, I am thinking this may not be such a great idea. I'm curious about what makes you think it worthy of mention.

I'm curious about what makes you think it worthy of mention.

Financially ruining your father, obviously. ;)

I don't see much impetus for tax simplification; and for whatever complexity is in the tax code for individuals, corporate taxes have far more scope for simplification.

(yeah, 95% of individuals just have wages, interest, tax/mortgage deductions...but the others have oil depletion allowances, wacky Puerto Rican tax credits, foreign income, etc; that's still simpler than on the corporate side)

Last time there was a big push for simplification (1980s), here's how it worked for Congressmen: get rid of swathes of special corporate deductions/credits while cutting rates, then spend the next 4-5 years getting tons of campaign contributions while getting lobbied to put those deductions/credits back in the tax code.

With all the super-PACs around, Congressmen don't need to work nearly as hard to rack up the cash, so why should they? And when they scare cash out of regular citizens (i.e., SUCKERS) they don't have to actually DO anything, so it's win-win.

wj: Why would there be a problem matching K-1s to individual returns?

It's not a matching of a K-1 to an individual, it's about the numbers on the K-1, the flow-through nature of partnerships, and the differences that result. A pro-rata distribution among partners may be taxable to some but not others (even if non-taxable generally). Depreciation deductions and basis often differ. If I contributed cash and you contributed fully depreciated (but still valuable) property, we'll have different tax results even if it's a "50/50" partnership.

I guess, fundamentally, the K-1 matching problem results from the fact that the partnership doing the reporting does not in many cases have all the necessary information to determine the tax consequences to its partners.

Financially ruining your father, obviously. ;)

Obviously.

If you do the math, our current income-tax-related receipts (combined corporate and individual income tax) comes to right around $1.48 trillion. As it happens, the acreage of non-public land in the US is approximately 1.47 billion, which means we need a round figure of about $1000/acre in land tax revenues to replace the income tax. Which means my dad, who has no income other than SS and farm income at this point, would be on the hook for about $20k/year.

My personal annual tax burden under this scheme would come to something like $300. The people who own land on and around the Butler chain of lakes West of Orlando might have to pay as much as $2000 per year on properties currently valued in the tens of millions of dollars.

All of this is just an exercise, of course.

I'm no longer sure who's talking to who about what. Oh, it's the internet! :-)

On simplification, I can go through the 2012 Form 1040 and give you a "policy" reason, or least a reason, for almost every line item. Separately they might make sense, but when you put them together on a single form it seems rather silly (and by silly I mean horribly complicated and stupid).

OTOH, I can see how many people would think unemployment compensation (line 19) isn't taxable, or even income in the first place, and so if there isn't a line item asking them to report it, they wouldn't and the legally required tax would only be collected after an audit.

Perhaps we should refer to you as Mr. Ugh (Ms. Ugh? Dr. Ugh? - I hate to presume) ... multiple comments beginning "Ugh" lend a certain air to the whole process :)

OTOH, I can see how many people would think unemployment compensation (line 19) isn't taxable, or even income in the first place, and so if there isn't a line item asking them to report it, they wouldn't and the legally required tax would only be collected after an audit.

Is there any reason that income couldn't be reported automatically by the state paying it and that it couldn't already be filled out on the return before the filer even gets it?

But I get your point about there being a logical and understandable policy reason for each individual aspect of the tax code. It's sort of like my house. There aren't many individual objects in it that are problematic in and of themselves in any way. It's just that all of them together make for messy, unmanageable clutter. There are just too damned many things in my house.

I'm curious about what makes you think it worthy of mention.

The topic is "tax simplification", no? It doesn't get much simpler than George's famous concept of a land tax. Fascinating as he and his ideas are, singling him out was not intended as panacea. Rather, it was an attempt, however ineffectual, to point out that "simplification" is inextricably bound up with politics and who gets what.

George's idea is based on taxing (rather heavily) economic rents derived from monopoly land rents. This may be less than ideal or wholly misguided, but I would put it miles ahead of such nakedly self serving ideas such as Steve Forbe's "flat tax" highway robbery. Similarly, a VAT would be reasonable, but only in the context of the kind of "socialism" practiced in just about all other wealthy nations on the planet.

In short, the devil is indeed in the details, and the sacred "family farm" is, as always, fair game given the fact that those who usually sing its hosannahs support a system hell bent on eliminating that way of life.

Here in Finland, we have automatically-filled tax returns. The system works in the following manner:
1) Employers, insurers etc. report the income and deducted taxes.
2) Banks report the mortgage interests, and all ownership and selling of stocks and other forms of equity.
3) Insurers etc. report all deductible payments made by tax-payers.

All these happen by the end of February.

In April, the tax office sends everyone a pre-filled tax return. The tax-payer has three possible ways to answer:
1) The return is correct and requires no further information. The taxpayer does nothing, except paying the eventual taxes due.
2) The return must be changed. The taxpayer marks changes and files the return on-line or offline. The tax office sends a new decision on taxation after a few months.
3) The tax office was incapable to fill the return completely. In this case, it includes a clear note that more information for certain items (e.g. the value of stocks at purchase) is needed. The taxpayer is required to file the changed return and the tax office will send a new decision on taxation after a few months.

The system works pretty well. I'd say that 90% of people don't need to file tax returns and even for the rest, the marking of changes is very easy.

"If you do the math..." Nice of you to show your work, but you appear to have started off on the wrong foot (revenue targeting).

Google "land value tax" and read the wiki entry. Milton Friedman opined that the LVT was the "least bad tax", but then he also came up with crazy ideas like guaranteed income...truly a nutcase.

As far as single family farms though, we already have the estate tax in place for those. We don't want to ruin your father, we want to ruin you.....all part of the CSP (Creeping Socialism Plan).

No intention to hijack this thread (although I am less concerned with complexity--the 1040 with itemized deductions isn't that intimidating to me, it's the business stuff that I can't get my arms around), but Lurker's point underscores the fundamentally problematic nature of managing affairs for a heterogeneous population of 300,000,000 plus people. What works well for 20,000,000 or less, what gets wobbly at 50,000,000 to 100,000,000, falls apart like a cardboard suitcase in the rain at 300,000,000.

On the reform angle, it isn't individual tax issues that are the problem. It's the corporate goodies and devices that corrupt gov't and the system. I'm not a fan, at all, of high corporate tax rates. I'd keep them low, allow deductions for dividends (and tax dividends as ordinary income), but I would also end transfer pricing and any other device that lets US companies move their money offshore for better tax treatment. Likewise, any device that supports moving jobs offshore has no place in the tax code. If it makes economic sense on its own merits for Company X to outsource, fine, that's the company's right; but anything in the tax code that subsidizes that kind of move needs to go. Ugh, I infer from some of your comments that the tax code does, indeed, underwrite outsourcing to some degree. Maybe I misinterpreted.

McKinney, there certainly are lots of things which do not scale well (or at all). But could you share some specifics on why you think the Finnish approach would not work here? What specific types of income do we have that they do not?

Or what other circumstances, applicable to taxation, only apply to the US (or countries of similar size)? Yes, we are a much more diverse country racially, linguistically, theologically, etc., etc. than Finland (or even the other European countries which use similar sytems) But does the tax system need to take account of those? Or is it supposed to treat people equally before the law, regardless of those?

What works well for 20,000,000 or less, what gets wobbly at 50,000,000 to 100,000,000, falls apart like a cardboard suitcase in the rain at 300,000,000.

In some cases, yes, and in some cases, no. It is not a law of physics. In fact, I'd say there are some things that work even better as they scale up, particularly where the law of very large numbers applies.

We're not talking about cultural issues here. We're talking about taxes. Lots and lots of people have relatively simple and similar tax profiles. Almost everything that matters for their taxes, the kinds of things Lurker mentioned, are reportable, just like the wages received and taxes withheld on my W-2.

Why should these people spend time filling out tax forms when all or most of the information is our could be reported, and entered ahead of time? What does the size of our population have to do with it?

But I agree that businesses are another matter entirely - and pretty much everything else you wrote on that - given my limited knowledge on the subject, of course.

I'd also say that pre-filled tax returns aren't really tax code simplification, but tax filing simplification, so not entirely on topic.

McKinney,

as hairshirthedonist notes, most of the information required for pre-filled tax returns of normal wage-earning people is already automatically collected. Second, once you start doing the pre-filling, different financial services providers flock to the tax office to offer their data to be incorporated, as this makes for better customer service. For example, here it is only for about a year or two that the tax office has been able to automatically calculate the profits from sold stock investments.

Naturally, automatic pre-filling only works for normal wage-earners and for the most simple investments. If you have agricultural or business income, the deductions become altogether too complicated, and you don't really want the tax office to do them for you.

However, the system scales ~N, so it's only a question of more computing power and storage space.

long ago, I took a comparative tax law class at Harvard. It was fascinating, a room full of govt tax professionals from around the world (I am not a tax person but I was there scrounging needed credits and it somehow fit all the criteria I needed).

In an American law school, the stock phrase can be "except in Louisiana" since compared to the rest of the USA Louisiana has weird laws (due to the French influence I guess).

In my comparative tax class, the professor's way to end any generalized statement was "except in Singapore"

At that time, VAT couldn't be reconciled between layers of reporters "except in Singapore"....Singapore could do all sorts of nifty intrusive things because they simply had a much smaller number of taxpayers that needed to be monitored and smaller numbers allowed for more intensive data analysis and reconciliation.

It is straightforward, relatively, to deal with salaried employees. In a country as vast as the USA, I suspect the troubles come from the legions of self-employed and variable business models. Scaling up to deal with our taxpayers with the level of oversight that Singapore can achieve -- that would be a MASSIVE scaling up because there would be so many "small bits and pieces" that need individual attention. And that individual attention by a human analyst doesn't scale as well as something you can dump in a computer.

Tax is fascinating. It is all about what obligations we owe to each other as members of a common society -- and which segments of society are allowed to get a free pass.

Yes, we are a much more diverse country racially, linguistically, theologically, etc., etc. than Finland (or even the other European countries which use similar sytems) But does the tax system need to take account of those?

Of course not, but you are aware that a significant portion of our working population works day labor, farming, construction for cash, checks, etc. under payroll regimes that are not, to say the least, friendly to a gov't filing situation. Further, much of that demographic, and others as well, are fairly mobile. This is a factor in self reporting and self filing as well, and my point about being a large, heterogeneous population speaks more to the general trend of centralized authority and one-size-fits-all rules.

Having the feds do individual's taxes, to approach it from another angle, isn't even necessary for employees whose employers withhold. The feds already have the money and they get to keep it until a return is filed showing a refund is due. Perhaps the better rule would be that taxpayers only need to file if they have unreported income or if they are due a refund. Of course, that simplified approach runs the risk of a lot of income going unreported since no one is declaring under penalty of perjury that all income has, in fact, been reported.

In fact, I'd say there are some things that work even better as they scale up, particularly where the law of very large numbers applies.

I'd be interested to know what "some of these things" are. Social security would be one example, but it has virtually no moving parts: income is collected and disbursed via payroll deductions and quarterly tax payments.

What else do we centralize well that involves actual involvement of each citizen?

as hairshirthedonist notes, most of the information required for pre-filled tax returns of normal wage-earning people is already automatically collected.

Sure, for people who work for large enough operations to report, and assuming the reporting is done accurately, and assuming relatively stable employment and whole lot of other moving parts. But this is wages only--it is not interest, gains on the sale of capital assets, cash income, etc.

Your bank doesn't send you a form 1099-INT? Your broker doesn't send you a 1099-B? If I change jobs during the year, won't I get a W-2 from each employer? Do you get a 1098 from the bank holding your mortgage?

No one is claiming that the IRS can send everyone who has to file a tax return a 100%-accurate pre-filled 1040. But they can send some people just that and many others something close to it. They may be able to send many people something more accurate than those people would manage to file on their own, even if not 100% accurate. And there's no reason a significant number of people couldn't be saved a lot of time and effort, even if they had to mark up their pre-filled returns.

As far as operations reporting accurately goes, that's the case no matter who fills out the 1040. Do you think I verify the numbers on my W-2? I just take numbers from forms, showing what's already been reported, and use them to do my taxes. Unless something's significantly off, I'm not going to know.

You know what we do now, centrally, for everyone who files taxes? Process their returns. I don't understand why you think it's such a stretch to have already-reported information pre-entered.

Is anyone familiar with how the IRA currently cvhecks returns? My impression is that the vast majority of those that are not filed electronically in the first place get entered (mindlessly), and then everything gets checked electronically. Checked both for arithmetic errors, and for missing income. A return which actually gets checked by a human being is, necessarily, very much an exception.

The programs that do the checking are pretty much what would be needed to create the returns in the first place. And we already have those set up, both to take in the various income reports from payers, and to do the math and put the money in the right buckets.

Your bank doesn't send you a form 1099-INT? Your broker doesn't send you a 1099-B? If I change jobs during the year, won't I get a W-2 from each employer? Do you get a 1098 from the bank holding your mortgage?

I get year end statements from many sources, including 1099's for hundreds of thousands of dollars that pass through my trust account; however, because I self report, I don't pay tax on money that isn't actual income. It would be a nightmare if I got billed by the feds for the many mistaken 1099's that I get.

Suppose the feds sent me a tax bill that was way lower than what I knew my taxes to be--how would that be handled? My guess is that it would be no defense to say you paid what the gov't said you owed.

You aren't going to simplify much in our system, and on the personal side, for salaried employees, it isn't that big a deal to begin with.

I don't understand why you think it's such a stretch to have already-reported information pre-entered.

Because I've had to screw with the feds more than once. It is not a walk in the park. If your numbers don't agree with their numbers, better not make dinner plans. It's going to take a while. Ugh, feel free to correct me.

It would be a nightmare if I got billed by the feds for the many mistaken 1099's that I get.

No one's "billing" anyone for anything.

Suppose the feds sent me a tax bill that was way lower than what I knew my taxes to be--how would that be handled? My guess is that it would be no defense to say you paid what the gov't said you owed.

Exactly, aside from it being a return and not a bill. In any case, I don't see why that makes it a bad idea.

If your numbers don't agree with their numbers, better not make dinner plans. It's going to take a while.

That's already true, no? How would it be any worse just because they gave you their numbers ahead of time?

How would it be any worse just because they gave you their numbers ahead of time?

Because if someone claims to have paid you income that you never got and if you get a return from the IRS with a tax bill based on that error, you have to go through the process of fixing the problem (hiring Ugh or one of his/her colleagues). As I said, I routinely get 1099's for money that was never income. Your view of the fed's efficiency and accommodating attitude toward citizens is much more benign than mine.

But your erroneous 1099s go to the IRS now. Just because they would put the information they've received into a return wouldn't result in a tax bill any more than the fact that they get that same information results in tax bill now.

Here's what you would do, which is the same as what you do now:

Instructions for Recipient

Form 1099-MISC incorrect? If this form is incorrect or has been issued in error, contact the payer. If you cannot get this form corrected, attach an explanation to your tax return and report your income correctly.

How about this? Pre-filled returns with an opt-out option? I can guarantee that lots of people, including me, would take a pre-filled return containing all the information the feds are getting anyway. You and lots of other people wouldn't. Fair enough?

It doesn't get much simpler than George's famous concept of a land tax.

Sure, but "simple" and "sensible" are not always interchangeable. They're more or less linearly independent.

George's idea is based on taxing (rather heavily) economic rents derived from monopoly land rents.

Oh? I missed that. Wikipedia must be even further wrong than usual; its entry on him says he proposed that land be taxed based on its unimproved valuation. Or maybe I misread. Both have happened.

the sacred "family farm" is, as always, fair game given the fact that those who usually sing its hosannahs support a system hell bent on eliminating that way of life

I have no idea what the purpose of this last bit was, or if it even has a purpose. Some unpacking might be in order.

As far as single family farms though, we already have the estate tax in place for those. We don't want to ruin your father, we want to ruin you.....all part of the CSP (Creeping Socialism Plan).

Again: it's probably best to avoid subtlety with me, because I've had my shots.

I routinely get 1099's for money that was never income.

I wish I had that problem. So, funds flow into the trust and they are reported on a 1099 by the sender. Does the trust file a return? How are these flows not "income" (ah, that word again)to somebody or some thing? Or are they simply confusing your position as the 'trustee' with 'the trust'?

Hint: You get 13 tries at an official answer.

The not-mine 1099 has a mapping in the 1040 world. The guy I share an office with had his return rejected by the IRS because someone else had claimed his kid's social security number as a dependent. The IRS is not quite omniscient enough to have recognized that as an error, so first one in gets to e-file.

I wish I had that problem. So, funds flow into the trust and they are reported on a 1099 by the sender. Does the trust file a return? How are these flows not "income" (ah, that word again)to somebody or some thing? Or are they simply confusing your position as the 'trustee' with 'the trust'?

Hint: You get 13 tries at an official answer.

I can do it in one. I, and many other lawyers, routinely receive and hold funds for clients. Under the Code of Professional Responsibility, a fiduciary cannot co-mingle a client's money with his/her own. So, attorneys maintain a separate trust account to hold client funds. An accounting entry is made to identify the client and the amount of funds in the trust account owned or owed to that client. Interest on the trust account is paid to the State Bar to fund indigent legal services. The funds come in typically two circumstances, either I am holding client funds to pay a third party claiming against my client as a settlement or I am holding client funds owed to the client by a third party. In neither instance is there a taxable gain to me, unless the monies received by my client are taxable, or if some portion of the client's funds are owed to me as a fee (in which case, after obtaining a signed disbursement statement from the client, I issue checks per the fee arrangement off of the trust account to the client and my firm, and declare the portion going to my firm as income). Yet, when I receive these funds, the payor routinely 1099's me. It's not difficult to deal with when filing a return. My CPA does something the IRS recognizes and that ends the discussion. Under HSH's regime, the feds would have no way of knowing what 1099's were the real deal and which were errors.

McKinney, it sounds like what you have is either payors who are incorrectly sending 1099s at all (instead of the correct form), or there isn't a form in place (hence your CPA has to jump thru some hoop). Either way, it seems like there ought to be a simple enough resolution.

If there isn't a form appropriate to the purpose, then the IRS could create one. They don't seem to have any problem with doing that. If there is a form, then the payors could get educated to start using it. Sure, either situation would take a little time to resolve. But we won't get to automatically filled in returns all that fast either.

Thanks, Tex. Though I don't quite know why the 1099 is issued in your name.....

Looks like you may have missed the hint. This is Masters weekend ya' know.

All the best,

Thanks, Tex. Though I don't quite know why the 1099 is issued in your name.....

Looks like you may have missed the hint. This is Masters weekend ya' know.

All the best,

Typically, because the check is issued to my firm as trustee, and the check writer issues a 1099 accordingly.

I wish I was following the Master's. Unfortunately, I'm in the second of two back-to-back, two week trials. As much as I'd like to be on the course in the mornings and glued to the screen in the afternoon, my client is the target in the current matter (same in the last case, my client being the target) and it's a pretty serious case (as was the last case--both are major tragedies).

I do think the Committee made the right call on Tiger's hitting from the wrong place, although why he or his caddy didn't catch the mistake before he took the stroke is beyond me.

Under HSH's regime, the feds would have no way of knowing what 1099's were the real deal and which were errors.

Oh, ferchristsake, they'd know the same way they do now. Your accountant would tell them the same way he does now. Whoever is sending you erroneous 1099s is already sending them to the IRS. That's what copy A is for.

If the IRS sent you a return with a bunch of income from erroneous 1099s under "my" regime, all you'd have to do is throw the damned thing in the trash, pretend you never got it, and do whatever it is you would otherwise do under the current regime to file your taxes and correct any errors.

If you're going to call it my regime, don't tell me how it would work.

McKinney is correct that if the 1099 sent to you and IRS is in error, you need to explain and if you don't you'll likely receive a computer generated some time later asking for an explanation and underlying documentation. This happened to me once and it took several go rounds with the IRS before they were finally convinced and it was a pain (as it involved digging up land deeds and rental contracts and the like - plus I had never received the 1099 in the first place).

As for pre-filled in returns, if you don't agree with the IRS's numbers, change them and send in an explanation (if necessary), as HSH notes - this wouldn't be much different that what happens now.

As for saving people time, it's going to vary, but my guess for most people it sounds better than it will turn out to be - instead of entering the numbers you'll be checking the numbers. Also, a lot of information is not reported to the IRS, especially for certain deductions and credits. Would the forms be electronic? If not, then you're making changes by hand.

As for pre-filled in returns, if you don't agree with the IRS's numbers, change them and send in an explanation (if necessary), as HSH notes - this wouldn't be much different that what happens now.

Wouldn't a taxpayer's refund remain in stasis while this shakes out, or, if the IRS claims more tax is due, the taxpayer has to carry a contingent liability on his/her financial statement? Typically, I report my estimated taxes as a an expense against income on my financial statement, but at least I have the comfort of knowing that I, or my CPA, has fairly accurately estimated my true tax.

McKinney, pre-filled (not pre-filed) tax returns are obviously not for you. But they might be great for a lot of other people.

Your refund wouldn't be in stasis any more than it already is while waiting for you to file your taxes. You could simply ignore whatever the IRS sent you and do everything exactly as you do now. Nothing else would change.

The IRS would simply be giving you a return with all the information they had already on it for you to do whatever you like with it. Sign it and send it back as is, change it, or ignore it. It would have no bearing whatsoever on your refund, taxes owed, or the timing of the payment of either one, but for your choosing to use it in one way or another to file your taxes.

You still file your taxes, and until you do, the pre-filled return means nothing, and may continue to mean nothing if you choose not to use it.

It's entirely possible that what I'm proposing wouldn't be very useful for many people. But I think it would be.

I know that the IRS gets most of my information before I file from my employer, my banks, my mortgage company, my IRA's, etc. They know how many kids I had last year and how old they are. They know I was married last year.

If they assumed my general circumstances were the same and used everything that was reported to them, they could have about 90% of my return done before I even got it (electronically!). I would love that. I have to think that I'm not all that unusual, and I know a lot of people whose taxes are even simpler than mine - people who take the standard deduction, have no investment income and no dependents.

Not everyone has their own business. I'd imagine that pre-filled returns would be virtually useless for those who do. But they would do those people no harm whatsoever.

It has been a while since I read Henry George, but my recollection is that his ideas were based on taxing economic value of land use. This approach would go far in potentially resolving environmental issues related to resource extraction in this modern era since the taxation could include whatever is required to mitigate damage.

Another barrier to tax reform or simplification ( in addition to the full range of special interests that benefit from the status quo with respect to taxation) is the existing bureaucracy which will vehemently resist changes to reduce the size and power of that bureaucracy.

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