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Obama's Tax Plan Is Not Simple

February 5, 2015 in Economics

By Chris Edwards

Chris Edwards

President Obama’s tax plan would create “A Simpler, Fairer Tax Code,” according to the official fact sheet. The president’s budget uses “simplify” numerous times in describing the plan, and the president declared in his State of the Union address “let’s simplify the system.”

The president promised us ‘middle-class economics,’ but his tax plan is more like H&R Block economics. The only winning ‘class’ in society would be the tax accountants.”

Alas, the White House political team decided what the spin would be before looking at the actual plan. President Obama’s plan would make the tax code more complicated, not simpler. It would require more tax forms, more calculations, and more federal administration and enforcement, while necessitating more tax planning by families and businesses.

Here are some of President Obama’s pro-complexity proposals:

  • Tax 529 college savings plans. Luckily, this idea was dropped, but the episode illustrated the lack of thought Obama puts into imposing new tax compliance burdens.
  • Expand the earned income tax credit (EITC). The fraud and error rate in the EITC is already more than 20 percent, partly because the credit is so complicated. Expanding benefits would boost fraud and errors.
  • Create a $500 tax credit for two-earner families. This would require a new tax form, generate more errors, and impose administrative burdens on the Internal Revenue Service (IRS).
  • Tax capital gains at death. This would be much more complicated than the current system of stepping-up the basis of assets at death, partly because of all the rules related to income levels and exemptions under the plan.
  • Impose a new bank tax. Such a tax would require new tax forms and a new division of expert administrators at the IRS. It would also impose compliance burdens on banks, and prompt them to design accounting structures to avoid the tax’s costly bite.
  • Expand the child care credit. This would induce more families to fill out the related tax forms, and would prompt more people to cheat because the credit would be tripled to $3,000 per child. More cheating would generate higher IRS administration and enforcement costs.
  • Impose a “Fair Share” or Buffett tax on high earners. This would add more calculations to tax forms and encourage accountants to create more tax shelters to avoid it. The new 28 percent limit on deductions for higher earners would also add complexity.
  • Increase cigarette taxes by 94 cents per pack. Aside from hitting low-income Americans, this …read more

    Source: OP-EDS

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