The contest was to “share what you would do to change our current tax code if you had that power. The winners will be based on originality, feasibility, and fiscal responsibility.” A free copy of the TurboTax Premier online edition for the winners.
First Winner – msf – a comprehensive plan:
1. Move back toward Reagan’s 1986 Tax Reform Act concept of treating all income the same – no favoritism for capital gains. This would have a side benefit of getting rid of the issue of how to deal with “carried interest” (the loophole by which hedge fund managers pay 15% tax on their compensation).
2. Gradually phase out the mortgage deduction – it has already been capped, removal of the deduction would reduce distortions in the real estate market, and other countries do fine without it.
3. Simplify pass throughs of expenses and exemptions of mutual funds
a) in some states, your bond fund has to have over 50% in treasuries to get pro-rated state tax exemption. Make this consistent – all states pro-rate.
b) foreign tax passthrough. Just get rid of it, and have the funds deduct the taxes themselves. This is what global funds must do (if funds don’t meet a certain threshold, they are not allowed to pass through the taxes, but deduct them directly), and will have no impact on funds held in tax sheltered accounts. This simplifies matters, since the funds then treat taxes paid the same way they treat any other cost – as a reduction of income.
4. Restructure the AMT form – the AMT is nearly a flat tax – how much did you make, multiply by 26% (or 28%), and compare with your ordinary income tax. Pay the higher. By restructuring the form, it will be clearer that these are two parallel systems (not an AMT “surcharge”), and it will be clearer that the taxpayer’s goal is to minimize taxes (keep the amount owed in both systems low), not to eliminate AMT (even at the expense of paying higher taxes). It will also help show what a flat tax could look like in practice.
Second Winner – Augustine – simple, but powerful:
Flat, 15% rate with no deductions. It’s been done in other countries, including Russia after it ditched Marx’s progressive income tax, and its revenues increased. I’d even add it to the constitution, along with a mandate for a balanced federal budget, so that government would be bound by the same rules as every American: unless you live within your means, you go bankrupt.
PS: no way I’ll win this.
WildCard Winner – Janet – no loopholes:
I’d get rid of all tax loopholes. No overseas tax shelters or anything like that. You make money, you pay tax.
Judging these contests is tough. It got tougher as more comments came in. I chose the top two ideas I thought were well reasoned and then did a random drawing for the third card. Winners will be notified by day’s end and I’ll send the card or PIN for them to access the TurboTax software.
FTC disclaimer – I received no compensation for this giveaway. I’ve used TurboTax for 27 years now, and am proud to offer my readers this opportunity.