A lot of people argue that it takes
way too much effort to file your income taxes
— in other words, that the tax system needs simplifying.
There are a few ways politicians say our tax code
could be simpler, but they’re not all
equally effective strategies.
First is cutting the number of brackets
— that is, the number of different income tax rate levels.
The less money you make,
the lower the bracket you’re in.
Right now there are seven brackets, with marginal rates
ranging from 10 to almost 40 percent.
The latest Republican plan would get rid of
some of those brackets, but figuring out the bracket
you fall into generally isn’t the hard part
of doing your taxes.
However, tallying up all the deductions and credits
can be one hard part of the process.
Cutting those is another way to simplify the tax system.
You might hear politicians say,
“broaden the base, lower the rate,”
– the idea is that fewer deductions and credits
allow the government to tax more of your income.
Then the government can balance that out
by lowering tax rates.
For example, the GOP has proposed eliminating
state and local tax deductions.
Doing that could give the federal government
around $63 billion more per year.
But there are some deductions that just
won’t disappear.
For example, deductions for mortgage interest
and charitable contributions are
really big and really popular.
Those are places where “simplifying”
isn’t likely to happen.
Here’s one other thing that politicians
complain about — that the tax code is super long.
They use this as evidence that the tax system
is too complicated.
But if you were really committed to shrinking
the tax code itself, a lot of that cutting
would be really unsexy.
The definition of “dependent”
is somewhere around 3,000 words long.
Most just politicians have bigger fights to pick than that.
So as lawmakers discuss how to overhaul
the tax code, this is all stuff to keep an eye out for:
What, if anything, is being simplified…
and also, who benefits from it?
