2019 Tax Filing Season and the 21st Century IRS
Subcommittee on Oversight, National Taxpayer Advocate on the IRS Filing Season, March 7, 2019
Senate Finance, April 10, 2019 (revisions in italics)
For most people, this year will be much the same as last year, although many will no longer itemize, but they will also lose exemptions. The new forms will at least let paper filers know that there is a change. For those who use tax preparers or preparation software, there will be little difference.
The Tax Cut and Jobs Act gave most people neither a real tax cut or jobs. The goal was to stimulate an already growing economy by giving tax breaks to "job creators." The reality is that these cuts went to asset speculators, as they always do. It does not matter what the asset markets do, they are their own master and their prices are about too much money chasing too few good instruments, which leads to funding such garbage as Bitcoin. Eliminating that inflation through bond sales is a good method, as is making such sales unnecessary through higher tax rates on the wealthy, preferably from an income and inheritance surtax.
Even with inequality growing, many enjoy their civic duty to file taxes, but those who use preparers probably do not, which is most people. The rich will likely use accountants who have other money management duties and who, like the IRS employees, must figure out the new tax rules on pass-through income. For some, these rules equalize the treatment of ownership income between corporate and non-corporate firms, to others this is just another give away to donors. For all businesses, the ending of corporate income taxation and its replacement with a value added tax and/or a net business receipts/subtraction VAT or our new Asset VAT proposal would have been so much easier, save for the resistance of the prior Chairman.
The reality is that an implicit hidden value added tax is already in force. It is the tax withheld by employers for the income and payroll taxes of their labor force. A VAT simply makes these taxes visible while an NBRT makes them more manageable, allowing employers to adjust pay more easily for larger families, pay for health care or insurance and fund public and non-public schools for dependents and college or technical training for workers, as well as retirement plans that give employees a stake and a say in the firm and a more secure retirement.
We preface our remaining comments with our newly revised comprehensive four-part approach, which will aid members’ familiarity with its points, inform new committee members and provide context for our comments.
The collection of the Employee Contribution to Social Security will be exactly as it is now. Like proposals for a FairTax, the Value Added Tax and NBRT/Subtraction VAT will be collected by the states. If the basic structure of reform is adopted in the states, the biggest change will be the need for a common base between federal and state consumption taxes.
Shifting from retail sales taxes and gross receipts taxes to value added taxes and VAT-like net business receipts taxes will change the nature of most state taxation, while enabling ease of collection of taxes on online sales, since taxes would be levied at every stage of the production process. The IRS will assist states in this process, which will likely take the form of some federal-state compact commission to draft and approve the transitional rules.
If a common base agreement can be negotiated for these taxes, state treasurers can collect both their own taxes and the federal taxes, as well as analytical information on tax credit usage, which can then be shared with the U.S. Internal Revenue Service in order to track income accruing to payers of the federal high income surtax, as well as to recipients of the federal child tax credit, which would be paid to employees with wages under the NBRT and then verified by a mailing from both the employer and the Internal Revenue Service, with employees verifying that their employees paid every dollar to them reported as a credit.
There will likely be problems to resolve in our proposed system, where the states collect by the Value Added Tax and the Net Business Receipts Tax and forward the money and records to the Internal Revenue Service. This will not impact most taxpayers, since once they have bought a product, no further action is necessary.
The IRS will likely supplement state-based auditing with reviews of their own, but this is a small price to pay for a reform that will reduce the income tax payment and audit workload by at least 80%. Indeed, income tax simplification (through the elimination of all but a few deductions), will further eliminate the workload generated by remaining income tax payers. As you see, this is a much bigger change than reform around the edges.
Employees with children will need to annually verify the information provided by employers and, if they received less than was reported to the government, notify the IRS who will send a refund and collect the difference from the employer. This may trigger a dispute, but likely most employers will simply pay if there was an error. Fraud is another matter, which is criminal not a dispute to be settled. Other disputes may involve parents double dipping on two jobs or two earners, but these will likely work out a payment plan or contact their divorce lawyers to negotiate who pays.
Individuals making over $50,000 per year and joint filers making over $100,000 will have their wage and dividend income information submitted to the IRS as part of NBRT filings, which will be stored to compare to tax filings, unless the Congress authorizes an automatic filing system where all income surtax payers will receive notification when all data should have arrived and what their refund or payment will be once they correct the information or certify it is correct already. Banking information should be on file, so authorization for payment, either at once or installments should be easy. Very little IRS Administration will be required to do this. Indeed, data management and mailing could be contracted out. All IRS employees could fit in a bathtub with room for Grover Norquist.
Senate Finance, April 10, 2019 (revisions in italics)
For most people, this year will be much the same as last year, although many will no longer itemize, but they will also lose exemptions. The new forms will at least let paper filers know that there is a change. For those who use tax preparers or preparation software, there will be little difference.
The Tax Cut and Jobs Act gave most people neither a real tax cut or jobs. The goal was to stimulate an already growing economy by giving tax breaks to "job creators." The reality is that these cuts went to asset speculators, as they always do. It does not matter what the asset markets do, they are their own master and their prices are about too much money chasing too few good instruments, which leads to funding such garbage as Bitcoin. Eliminating that inflation through bond sales is a good method, as is making such sales unnecessary through higher tax rates on the wealthy, preferably from an income and inheritance surtax.
Even with inequality growing, many enjoy their civic duty to file taxes, but those who use preparers probably do not, which is most people. The rich will likely use accountants who have other money management duties and who, like the IRS employees, must figure out the new tax rules on pass-through income. For some, these rules equalize the treatment of ownership income between corporate and non-corporate firms, to others this is just another give away to donors. For all businesses, the ending of corporate income taxation and its replacement with a value added tax and/or a net business receipts/subtraction VAT or our new Asset VAT proposal would have been so much easier, save for the resistance of the prior Chairman.
The reality is that an implicit hidden value added tax is already in force. It is the tax withheld by employers for the income and payroll taxes of their labor force. A VAT simply makes these taxes visible while an NBRT makes them more manageable, allowing employers to adjust pay more easily for larger families, pay for health care or insurance and fund public and non-public schools for dependents and college or technical training for workers, as well as retirement plans that give employees a stake and a say in the firm and a more secure retirement.
We preface our remaining comments with our newly revised comprehensive four-part approach, which will aid members’ familiarity with its points, inform new committee members and provide context for our comments.
- A Value Added Tax (VAT) to fund domestic military spending and domestic discretionary spending with a rate between 10% and 13%, which makes sure every American pays something. Carbon taxes are included in this category.
- Personal income surtaxes on joint and widowed filers with net annual incomes of $100,000 and single filers earning $50,000 per year to fund net interest payments, debt retirement and overseas and strategic military spending and other international spending, with graduated rates. Capital gains taxes will be replaced by an Asset VAT or A-VAT of between 20% and 30%. At inheritance or at the exercise of options, previous tax payments will be set to zero. Brokers will collect these taxes and remit them to the SEC. Sales to qualified ESOPs will remain tax free. Short term trades will be subject to a Tobin Tax.
- Employee contributions to Old Age and Survivors Insurance (OASI) with a lower income cap, which allows for lower payment levels to wealthier retirees without making bend points more progressive.
- A VAT-like Net Business Receipts Tax (NBRT), which is essentially a subtraction VAT with additional tax expenditures for family support, health care and the private delivery of governmental services, to fund entitlement spending and replace income tax filing for most people (including people who file without paying), the corporate income tax, business tax filing through individual income taxes and the employer contribution to OASI, all payroll taxes for hospital insurance, disability insurance, unemployment insurance and survivors under age 60.
The collection of the Employee Contribution to Social Security will be exactly as it is now. Like proposals for a FairTax, the Value Added Tax and NBRT/Subtraction VAT will be collected by the states. If the basic structure of reform is adopted in the states, the biggest change will be the need for a common base between federal and state consumption taxes.
Shifting from retail sales taxes and gross receipts taxes to value added taxes and VAT-like net business receipts taxes will change the nature of most state taxation, while enabling ease of collection of taxes on online sales, since taxes would be levied at every stage of the production process. The IRS will assist states in this process, which will likely take the form of some federal-state compact commission to draft and approve the transitional rules.
If a common base agreement can be negotiated for these taxes, state treasurers can collect both their own taxes and the federal taxes, as well as analytical information on tax credit usage, which can then be shared with the U.S. Internal Revenue Service in order to track income accruing to payers of the federal high income surtax, as well as to recipients of the federal child tax credit, which would be paid to employees with wages under the NBRT and then verified by a mailing from both the employer and the Internal Revenue Service, with employees verifying that their employees paid every dollar to them reported as a credit.
There will likely be problems to resolve in our proposed system, where the states collect by the Value Added Tax and the Net Business Receipts Tax and forward the money and records to the Internal Revenue Service. This will not impact most taxpayers, since once they have bought a product, no further action is necessary.
The IRS will likely supplement state-based auditing with reviews of their own, but this is a small price to pay for a reform that will reduce the income tax payment and audit workload by at least 80%. Indeed, income tax simplification (through the elimination of all but a few deductions), will further eliminate the workload generated by remaining income tax payers. As you see, this is a much bigger change than reform around the edges.
Employees with children will need to annually verify the information provided by employers and, if they received less than was reported to the government, notify the IRS who will send a refund and collect the difference from the employer. This may trigger a dispute, but likely most employers will simply pay if there was an error. Fraud is another matter, which is criminal not a dispute to be settled. Other disputes may involve parents double dipping on two jobs or two earners, but these will likely work out a payment plan or contact their divorce lawyers to negotiate who pays.
Individuals making over $50,000 per year and joint filers making over $100,000 will have their wage and dividend income information submitted to the IRS as part of NBRT filings, which will be stored to compare to tax filings, unless the Congress authorizes an automatic filing system where all income surtax payers will receive notification when all data should have arrived and what their refund or payment will be once they correct the information or certify it is correct already. Banking information should be on file, so authorization for payment, either at once or installments should be easy. Very little IRS Administration will be required to do this. Indeed, data management and mailing could be contracted out. All IRS employees could fit in a bathtub with room for Grover Norquist.
posted by Michael Bindner at 10:15 AM
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