Taxes

Trump's Phony Postcard Tax Return

The tax bill does not deliver the simplification that the president promised.

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At a meeting with congressional leaders last month, Donald Trump kissed a postcard-sized tax form, expressing his commitment to simplification of the hideously complex Internal Revenue Code. "Over 90 percent of Americans are going to fill out taxes on that postcard," Treasury Secretary Steve Mnuchin promised on Sunday.

That's not really true, because the bill that emerged from Congress this week does little to simplify the tax code and in some ways makes it even more complicated. The tax return on a postcard, originally a symbol of radical reform, has become a gimmick aimed at distracting the public from a revenue collection system that is just as confusing, frustrating, intrusive, and manipulative as ever.

Hoover Institution economists Robert Hall and Alvin Rabushka promoted the idea of a "postcard tax return" in their 1985 book The Flat Tax, tying it to the elimination of deductions, credits, and every tax bracket but one. Under Hall and Rabushka's plan, everyone would pay a single rate on all forms of income after subtracting a "personal allowance" aimed at maintaining progressivity.

The postcard tax return touted by Trump and Mnuchin, by contrast, is tied to a tax bill that retains seven income brackets (while redefining them and fiddling with the rates) and all the major tax breaks, including the ones for charitable donations, mortgage interest, and state and local taxes. The limits that the bill imposes on the latter two deductions will make tax preparation more rather than less complicated, since filers will have to figure out how much of those expenditures can be subtracted from their taxable income.

The Trump administration's postcard promise is based on a trick that the Tax Policy Center's Roberton Williams highlighted last year: shifting the figuring off the main form. Most of the items on the "Simple, Fair 'Postcard' Tax Filing" that the president kissed, such as "wage and compensation income," "contributions to specified savings plans," "earned income credit," and child credits (doubled under the tax bill but still phased out as income rises), require additional consultation, consideration, and calculation.

The main rationale for the claim that the tax bill simplifies returns is the near-doubling of the standard deduction (which is coupled with the elimination of personal and dependent exemptions). That change is expected to reduce the share of filers who itemize from 30 percent to 6 percent.

The problem is that taxpayers still won't know whether the standard deduction exceeds their potential itemized deductions unless they go to the trouble of documenting the latter throughout the year and running the numbers when they prepare their returns. That work also does not show up on the postcard return.

The tax bill introduces new wrinkles, including a 20-percent deduction for "pass-through" income from businesses such as partnerships and sole proprietorships, which is reported on individual returns. The upshot is that the tax rate for pass-through income will be lower than the individual income rate (but higher than the new, lower corporate rate), inviting new forms of tax gamesmanship.

The last thing our tax system needs is more complexity. According to the Tax Foundation, the Internal Revenue Code, which totals 2.4 million words, is nearly six times as long as it was in 1955 and almost twice as long as it was in 1985. That's not including 7.7 million words of tax regulations or 60,000 pages of relevant case law.

The Tax Foundation says complying with IRS filing requirements consumed nearly 9 billion hours last year, at a cost of more than $400 billion. That's not including billions of dollars in costs resulting from suboptimal economic decisions encouraged by the tax code, or the damage done to principles of fairness when the law is so complicated that the average person cannot reasonably be expected to understand it.

The president said he wanted to "make the tax code simple, fair and easy to understand." It's a worthy aspiration that the tax bill does not come close to fulfilling.

© Copyright 2017 by Creators Syndicate Inc.

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  1. I think the important lesson here is that if you don’t get 100% of everything you want, then nothing of value has been achieved.

    1. That’s the way ideologues think across the entire spectrum.

  2. The double calculation is a red herring. Do that once or twice and you will quickly figure out if you are part of the 94%. Or. Skip it entirely and take your 94% chance.

  3. On the one hand the tax reform bill doesn’t crimp stadium construction or simplify down to the size of a postcard.

    On the other hand, it cuts the corporate tax rate by 40%.

    On the one hand, the tax reform is bad because it doesn’t cut entitlement spending.

    On the other hand, Reason roundly opposed the ObamaCare replacement bill despite the fact that it cut $1.022 trillion in entitlement spending.

    I never thought I’d see Reason go full retard like this.

    Making the government smaller is a good thing–regardless of whether Reason likes making the government smaller.

    1. Reason isn’t the only one. The amount of recognized experts in support of either the Republican efforts on healthcare or this tax bill is laughably small. Perhaps there are bad ways to do good things?

      1. Tell me what wasn’t to like about this bill from a libertarian perspective:

        https://www.cbo.gov/publication/52849

        It cut $772 billion in Medicaid.

        It cut $1.022 trillion in spending.

        It cut $321 trillion from the deficit.

        It got rid of the individual mandate, the employer mandate, as well as an assortment of other taxes.

        It got rid of direct subsidies to the insurance companies.

        The only semi-legitimate complaints I read were about things it didn’t do.

        Among the non-legitimate complaints were the arguments against it coming from Reason.

        They opposed it because they said cutting Medicaid wasn’t really going to happen because future congresses might reinstate that spending–as if that could ever not be a problem.

        They opposed delaying the cuts until 2018, but the alternative was having no cuts at all.

        I don’t care how many appeals to authority “experts” agree that making the government smaller by slashing spending on socialist Medicaid programs is a bad thing. We’re supposed to be able to depend on Reason to make the libertarian arguments.

        And now they’re complaining about the tax reform bill because it doesn’t cut entitlement spending!!!

        That’s going full retard.

        1. “It cut $321 [b]illion from the deficit.”

          Fixed!

        2. It wasn’t Hillary doing it?

          /LINOs

        3. Ken, well put.

          The next battle for cutting entitlement spending can be fought with the 2018 budget.

        4. Beautifully said Ken.

  4. Does Mr. Hihn have a newsletter or blog where we can find out what his solution to taxes is?

    1. It probably involves bold-faced type and parentheticals about what noises he’s making while writing it.

  5. At least Trump is trying to get taxes simplified and Jacob cannot stand that.

    You are right, Trump said he wanted most Americans to be able to complete taxes on a postcard. Turns out he could not force Congress, made up of not a single Democrat who would cooperate and 240 Republicans many of which are RINOs, to get taxes down a postcard simplicity.

    As some of us have been explaining for almost a year now, Trump typically negotiates from an extreme position to a compromise position. That compromise position is the 2017 tax reform bill. Its does all the good things that Ken mentions above.

    From this victory, we can push to make taxes simpler in 2018. Don’t forget Jacob, that working to roll back government is clearly going to be an incremental process. This is one step in the right direction.

    1. Getting rid of the rest of the deductions will be a lot easier when only 6 percent of filers itemize.

  6. Excellent job by Mr. Sullivan at totally ignoring aspects of the bill that represent true simplification and overstating the complications of new items. First off, the fact that tax rates and brackets have changed makes no difference whatsoever. The process is the same. The numbers just changed. And does he really think that it adds a lot more complication to have a limit on state and local taxes? Let’s see, I have actual taxes of $15,000, but I’m limited to $10,000. What number do I put in my for my deduction? More importantly, there are some changes that actually make things a lot easier. For example, the elimination of personal exemptions means we no longer have to calculate the potential for the phaseout of those exemptions. Second, the phaseout of itemized deductions has been eliminated. Third, the phaseout of the alternative minimum tax exemption has increased dramatically, which will significantly reduce the number of taxpayers that have to calculate that phase out.

  7. ITS THE END OF THE WIRLD!!!!?

  8. I agree with most of the piece but this is just wrong:

    The limits that the bill imposes on the latter two deductions will make tax preparation more rather than less complicated, since filers will have to figure out how much of those expenditures can be subtracted from their taxable income.

    That isn’t any more complicated than it is today. To say it is is completely dishonest. And I don’t know exactly where we ended up on the AMT, but any reduction in its impact is a major simplification because you have to potentially figure out your taxes THREE different ways under the current system.

  9. Michael Hihn pays his taxes on a post card with cat feces rubbed on it from his last meal. The Rands were right when they sent that UFO to monitor your domicile.


  10. The problem is that taxpayers still won’t know whether the standard deduction exceeds their potential itemized deductions unless they go to the trouble of documenting the latter throughout the year and running the numbers when they prepare their returns. That work also does not show up on the postcard return.

    I’m pretty sure hundreds of CPA’s, at least, are going to do exactly that.

  11. No one is talking fundamentals. This is supposed to be the major tax reform, a once in a generation bill. But all it does is change some rates and schedules. It does nothing to change the fundamental way the US INDIVIDUAL INCOME TAX has been illegally collected since WWII, in order to feed the welfare/warfare state.
    You want to see an easy to fill out tax return? There are over a thousand of them on display at http://www.losthorizons.com. You can fill out your return in twenty minutes and get a full refund of all withheld state and federal income taxes , including payroll taxes. All the legal geniuses in the libertarian/conservative establishment couldn’t figure out this return, because despite their law degrees and PHd’s in economics they don’t understand the difference between a right and a privilege. That should be libertarianism 101. They are like Trumps judicial nominee who couldn’t answer basic law questions.
    Until the libertarian/conservative establishment figures out the basic tax clauses in the US Constitution, the historical development of federal tax jurisprudence, the reason and meaning of the 16th Amendment, and the basic difference between an excise tax and a direct tax, we will continue to feed the God of War and Welfare with our hard earned money. It is up to the people to control the government, not for government to control the people!

    1. It would be nice if we could each interpret the laws our own way, but it doesn’t work that way, and they have the guns and officers and jails.

  12. The original House version was closer to a post card, with no SALT deduction, no medical expense deduction, half a million mortgage interest cap, no student loan deduction, taxes on tuition waivers and the end of the hated AMT.

    Fortunately the Senate steered them away from those electorally suicidal ideas, toward a big corporate tax cut, a modest personal tax cut, an increase in where the AMT kicks in, and a shift away from itemizing without removing the “bloody murder” deductions, all while repealing the odious health insurance mandate penaltax.

    So Democrats are making a mistake if they run against the tax cuts now.

    1. LOL, when the top 0.34% files their return on a postcard, you can believe that it was close.

      The original House version would have been DoA.

      So Democrats are making a mistake if they run against the tax cuts now.
      Given that they never did, only wanted to tax differently, this is moot.

  13. If that was the biggest problem with it

  14. It should be called the “Tax Accountants and Lawyers Relief Act of 2017,” as those are the real winners. This is not tax reform at all; it’s a giveaway to the ultrarich that will explode the national debt.

  15. I find it ironic that another reason post talks about the phony outrage in Washington, but you here commit just that sin.

    The idea of a postcard-tax-return is prima facie idiotic, if one accepts the premise that income tax should be progressive.

    At the very simplest level, progressive, scaled taxation is anathema to simplification. Frankly, I’d rather have it be a page or two and fairer, than some dumb flat tax that poses a crushing burden on those who can’t afford it, while barely scratching those who can.

  16. This 2018 tax code is no postcard, but it does simplify a lot compared to the old tax code. Once you create a Frankenstein, sometimes it takes a couple of tries to really put it down. For a first try, this has a lot to admire.

  17. Hmmm.

    You complain that the revised tax code offers “new wrinkles, including a 20-percent deduction for “pass-through” income from businesses such as partnerships and sole proprietorships, which is reported on individual returns.” But this is not applicable to the average working man!

    What percentage of potential taxpayers are regular working people with income below the second level starting amount (~$70,000?) and will only have the standard deduction? Do they fill in the postcard return?

  18. But this is not applicable to the average working man!

    Ummm, yeah. That’s what it says!
    Bjt Jacob blew the comparison badly. Keep in mind, today’s anti-gubmint libertarians are virtually clueless on the tax code, health care and the economy, .

    I guess we should count as victory that Trump did not steal the 48% personal tax cut for himself that he campaigned on.. I’m told his secret plan to drain the swamp consists of pouring as much INTO the swamp, as fast as he can .. claiming that will cause its walls to collapse. His base is almost entirely Birthers, which gives him lots of wiggle room.
    He did day they would stand by him even if he shot somebody to death in broad daylight — so he insults even his own supporters.

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