Volcker task force on tax reform faces a daunting task that is made materially more difficult by constraints placed on its purview and recommendations. Simplicity often conflicts with other tax policy goals, like equity and enforcement. Simplification is not just an issue of filling out forms; it also involves how individuals pursue activities that minimize or avoid taxes. Converting all deductions, credits, etc., to government spending programs would simplify “taxes” greatly, but would greatly.
The complexity is now affecting taxpayers in all income groups. The task force should recommend gradually moving an increasing number of people to a “return-free” tax system. This could be either a fully return-free system, which would feature exact withholding, or, more likely, a tax agency reconciliation system.
A return-free filing system would have several advantages. Most simplification gains are hard to document. The current system is too complex to accommodate a return- free system. Any new provision that could not be accommodated would face a natural hurdle for enactment.
The system could probably be applied to up to 50 million returns with relatively small structural changes. The second objection is that the IRS lacks the capacity to administer a system like this. So, let’s aim to get 10 million people into a return-free system by 2013.
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https://www.urban.org/sites/default/files/publication/29906/1001314-Remove-the-Return.PDF
Other key points:
- consolidate family, work, and dependent provisions;
- consolidate education incentives;
- consolidate saving incentives;
- tax capital gains like ordinary income;
- repeal the alternative minimum tax;
- reduce the number and variety of phaseouts;
- eliminate hidden taxes and “take-back” taxes, including the personal exemption phaseout and the Pease itemized deduction limitation; and
- increase the use of withholding taxes.