are we stupid?
The US tax code is so complex and convoluted that it creates an inordinate burden and inefficiency in the collection and distribution of funds, compared to a simplified and sensible code.
The bureaucracies and layers of professional advisors, preparers, auditors, legal representatives and the like are costly and inefficient, propped up and necessitated solely by the outlandish construction of the tax code itself. Let me emphasize that this complexity is not required by the size of the taxes collected. That is a simple calculation that anyone can do. It is merely, strictly, solely and sadly the complexity of the tax code, with its circuitous references and byzantine construction, which necessitates and wastes all of this time and effort, requiring examination, interpretation, debate, argumentation, prosecution, mediation and other verbs which cost calories, time and money.
Unbelievable amounts of time and money with which we could do so much more, educate more, feed more, invent more, create more, advance more.
And of course, each layer of the tax cottage industry contributes its further indirection, obfuscation, contradiction, misinterpretation. When they get it wrong, whether intentionally or unintentionally, it creates more problems to be fixed and re-filed, litigated, re-negotiated or even bribed away. And when they get it right, which is never 100%, we are merely where we should have been already, automatically, without requiring them.
Here is an example of one TINY sub-sub-sub-sub-sub-subsection of the Income Tax code for the children of individual filers — not even a speck compared to the vast menagerie of regulations governing business tax, inheritance tax, etc. This ENTIRE subsection deals only with “certain unearned income of children taxed as if parent’s income”.
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(g) Certain unearned income of children taxed as if parent's income
(1) In general
In the case of any child to whom this subsection applies, the tax imposed by this section shall be equal to the greater of-
(A) the tax imposed by this section without regard to this subsection, or
(B) the sum of-
(i) the tax which would be imposed by this section if the taxable income of such child for the taxable year were reduced by the net unearned income of such child, plus
(ii) such child's share of the allocable parental tax.
(2) Child to whom subsection applies
This subsection shall apply to any child for any taxable year if-
(A) such child-
(i) has not attained age 18 before the close of the taxable year, or
(ii)(I) has attained age 18 before the close of the taxable year and meets the age requirements of section 152(c)(3) (determined without regard to subparagraph (B) thereof), and
(II) whose earned income (as defined in section 911(d)(2)) for such taxable year does not exceed one-half of the amount of the individual's support (within the meaning of section 152(c)(1)(D) after the application of section 152(f)(5) (without regard to subparagraph (A) thereof)) for such taxable year,
(B) either parent of such child is alive at the close of the taxable year, and
(C) such child does not file a joint return for the taxable year.
(3) Allocable parental tax
For purposes of this subsection-
(A) In general
The term "allocable parental tax" means the excess of-
(i) the tax which would be imposed by this section on the parent's taxable income if such income included the net unearned income of all children of the parent to whom this subsection applies, over
(ii) the tax imposed by this section on the parent without regard to this subsection.
For purposes of clause (i), net unearned income of all children of the parent shall not be taken into account in computing any exclusion, deduction, or credit of the parent.
(B) Child's share
A child's share of any allocable parental tax of a parent shall be equal to an amount which bears the same ratio to the total allocable parental tax as the child's net unearned income bears to the aggregate net unearned income of all children of such parent to whom this subsection applies.
(C) Special rule where parent has different taxable year
Except as provided in regulations, if the parent does not have the same taxable year as the child, the allocable parental tax shall be determined on the basis of the taxable year of the parent ending in the child's taxable year.
(4) Net unearned income
For purposes of this subsection-
(A) In general
The term "net unearned income" means the excess of-(i) the portion of the adjusted gross income for the taxable year which is not attributable to earned income (as defined in section 911(d)(2)), over
(ii) the sum of-
(I) the amount in effect for the taxable year under section 63(c)(5)(A) (relating to limitation on standard deduction in the case of certain dependents), plus
(II) the greater of the amount described in subclause (I) or, if the child itemizes his deductions for the taxable year, the amount of the itemized deductions allowed by this chapter for the taxable year which are directly connected with the production of the portion of adjusted gross income referred to in clause (i).
(B) Limitation based on taxable income
The amount of the net unearned income for any taxable year shall not exceed the individual's taxable income for such taxable year.
(C) Treatment of distributions from qualified disability trusts
For purposes of this subsection, in the case of any child who is a beneficiary of a qualified disability trust (as defined in section 642(b)(2)(C)(ii)), any amount included in the income of such child under sections 652 and 662 during a taxable year shall be considered earned income of such child for such taxable year.
(5) Special rules for determining parent to whom subsection applies
For purposes of this subsection, the parent whose taxable income shall be taken into account shall be-
(A) in the case of parents who are not married (within the meaning of section 7703), the custodial parent (within the meaning of section 152(e)) of the child, and
(B) in the case of married individuals filing separately, the individual with the greater taxable income.
(6) Providing of parent's TIN
The parent of any child to whom this subsection applies for any taxable year shall provide the TIN of such parent to such child and such child shall include such TIN on the child's return of tax imposed by this section for such taxable year.
(7) Election to claim certain unearned income of child on parent's return
(A) In general
If-
(i) any child to whom this subsection applies has gross income for the taxable year only from interest and dividends (including Alaska Permanent Fund dividends),
(ii) such gross income is more than the amount described in paragraph (4)(A)(ii)(I) and less than 10 times the amount so described,
(iii) no estimated tax payments for such year are made in the name and TIN of such child, and no amount has been deducted and withheld under section 3406, and
(iv) the parent of such child (as determined under paragraph (5)) elects the application of subparagraph (B),
such child shall be treated (other than for purposes of this paragraph) as having no gross income for such year and shall not be required to file a return under section 6012.
(B) Income included on parent's return
In the case of a parent making the election under this paragraph-
(i) the gross income of each child to whom such election applies (to the extent the gross income of such child exceeds twice the amount described in paragraph (4)(A)(ii)(I)) shall be included in such parent's gross income for the taxable year,
(ii) the tax imposed by this section for such year with respect to such parent shall be the amount equal to the sum of-
(I) the amount determined under this section after the application of clause (i), plus
(II) for each such child, 10 percent of the lesser of the amount described in paragraph (4)(A)(ii)(I) or the excess of the gross income of such child over the amount so described, and
(iii) any interest which is an item of tax preference under section 57(a)(5) of the child shall be treated as an item of tax preference of such parent (and not of such child).
(C) Regulations
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this paragraph.
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ARE YOU KIDDING ME?
Instead of tortured rules and exceptions that gerrymander around common sense, could we not have something that passes the smell test, sees the light of day and fits on a page? I believe we could, if we were willing to replace, starve, ignore or abandon the societal barnacles that are our elected officials and the bureaucracies and cottage industries they create.
If you are “poor” (whatever that is taken to mean), a simplified code would not hurt you. If everyone making less than “x” pays nothing, so be it. No problem.
If you are “rich” you can plan your efficiencies and profits accordingly. You can eliminate the cost of your loophole detectors and legal protractors, and pocket the savings, or invest in R&D and production enhancements.
Neither consideration above has anything to do with my complaint about complexity.
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Below is a single sentence I wrote in my teens for amusement. You read it, adroitly structured and sub-claused, and have no idea what it means on intends…
Hello, and welcome to your first in a continuing series of seminars designed to help you communicate in the briefest, most concise and articulate manner possible for a person who will, in just a few short minutes, indulge in a fantasy unlikely to be duplicated anywhere, seeing humankind's overwhelming propensity toward dense, murky and ill-defined language, the result of which can only serve to keep potential participants in our program further dulled of sense and less likely than ever to realize the benefits which may, with their cooperation and concerted effort, transform their heretofore embryonic communication skills into a dynamic set of strengths most find ideal in approaching the needs of work, home life and the myriad of, though oftentimes challenging, nevertheless seldom rewarding situations encountered daily in the pursuit of new horizons meant to elevate the seeker if he but knew their nature, namely to act as fortifying exercises, rather than debilitating trials, for that most sensitive muscle, known to most of us, unfortunately, as the primary source of pain, suffering and discouragement in an otherwise boldly colored, though often two-dimensionally panoramic backdrop we call, in our humble attempts at symbolic intellectualism (ironic due, among other reasons, to its complexity being reduced to a staunch parade of one fewer letters than we find digits on each timidly outstretched hand), life.
… Remind you of anything?