A tax reform proposal - get rid of schedule A

[hfojvt]

Summary:

Proposal - get rid of Schedule A - itemized deductions. Reasoning - 1) it simplifies tax filing and record keeping, 2) it closes loopholes that mostly benefit the wealthy, and 3) if it is combined with an increase of the standard deduction by $2,000 or so - it will be a tax cut for some in lower and middle income levels.

Also if somebody with Excel could get numbers on who benefits from itemized deductions, that might help my case.

http://www.irs.gov/taxstats/indtaxstats/article/0,,id=96981,00.html#_grp2


Details.

**Liberal Oasis, my morning read, was talking about the tax issue.
http://www.liberaloasis.com/

"Over at Hullabaloo, Digby laments incoming Senate Majority Leader Harry Reid's embrace of tax cuts, and calls for liberals to "challenge the conservative consensus" of low taxes "with new language and new ways of thinking about government"."

**Recently I wrote a couple LTTEs on this issue, which I shared with my family.

http://journals.democraticunderground.com/hfojvt

"A simple example should illustrate that. For my taxable income of $19,000 my taxes were $1718.25 in 2001 and $1278.25 in 2005. A tax cut of $440. Then there's my Uncle Charlie (not really a relative). According to Forbes, Charles Koch was worth $4.5 billion in 2005 and worth $12 billion in 2006. Let me estimate that his income is $10 million. Then, in 2001 his taxes were $3.887 million and in 2005 they were $3.48 million. A tax cut of $407,000!"

**My Republican sister replied

"I was curious of the percentage of your examples below. I think this
demonstrates it better, if I have the $$ correct. Interesting...

$Income $Taxes $
10,000,000 3,887,000 39%
19,000 1718 9%

$10,000,000 $3,480,000 35%
$19,000 $1,278 7%"

**Which made me think:

"Not sure why that is interesting, but it made me realize that I was
wrong. It's a good thing a CPA did not answer. At least one thing I got
wrong is that I used the standard deduction for Uncle Charlie and obviously he would itemize and take a deduction, for one thing, of his state tax payments of 644,279.17 which would reduce his taxes paid by about $255,000 in 2001 and $225,500 in 2005. But I am wrong about his Kansas taxes too because he would be itemizing deductions there as well so they would be less than $644,000. And I cannot even figure his home mortgage deduction even if I could estimate his interest payments on his home because I do not have Publication 936. And so on. Charles' brother David claims to give half his income to charity, which may be commendable, but I wonder if he considers the Heritage Foundation and Republican PACs to be charity, because he funds them generously as well.
I might also note that I am paying 15.3% in FICA taxes including my employer contribution whereas he is paying 3.41% of his income in FICA taxes."

**And whadda ya know, donations to the Heritage Foundation and Cato Institute are tax deductible. So for David, charity begins at home. Itemizing provides funding for these rightwing organizations, probably far more than it helps real charities or schools. I have never itemized in my 30 years of paying taxes. How do DUers feel about it? Do lots of you save money by itemizing? Does it bother you if your savings also saves multi-millionaires hundreds of thousands?

[Rosco T.]

1. and what about my mother-in-law, that has $40,000+ a year ...

.. in deductions for medical care and medicine (Alzheimer's patient, in a care facility)????

[hfojvt]

10. Ooops. I had thought about that too.

Obviously there needs to be an exception for catastrophic medical expenses. I knew that, but forget to include it in my OP.

[evlbstrd]

2. When you pry my Schedule A

from my cold dead hands! My mortgage interest deduction alone beats your increased standard deduction. And, no, I don't live in a McMansion.

[EvolveOrConvolve]

15. I heartily agree

My cold dead hands also!

Removing Schedule A would result in huge tax increases for much of the middle class.

[hfojvt]

23. maybe the upper middle class

but an increase in the standard deduction brings some of it back. So far, nobody is telling me how much they save from schedule A.

[EvolveOrConvolve]

24. I consider myself firmly middle class

Definitely not upper middle class. Schedule A saved me about $5K last year.

[hfojvt]

27. so under my proposal, you'd pay an extra thousand

Tweak my proposal a little - increase the standard deduction to $3,000 (or $5,000 since I have made the unwarranted assumption that you are married) and you would break even and gain in simplification.

Also, lots of wealthier people consider themselves middle class. The quintile breakdowns are $17,970, $33,314, $53,000, and $83,500. So I would call $17,970-33,314 lower middle class, $33,314-53,000 middle middle-class, and $53,000-83,500 upper middle class. Of course, mileage will vary by region, depending on how much housing costs.

[EvolveOrConvolve]

30. No, removing Schedule A would cost me $5K per year

And I'm not sure that you can define lower/middle/upper class the way you did. My mortgage payments alone are about $28K per year. At $33K, after taxes I wouldn't even have enough to pay for my house. And I own a house right around the median home price in my area.

[hfojvt]

33. no it wouldn't

I tied elimination of schedule A to increasing the standard deduction by $2,000 or $5,000. Which would reduce your taxes back down by $2,000 per person of $10,000 per couple. Unless you had already taken account of that in your $5000 figure.

I said it does depend on your housing market, but I am not sure that being at the median makes you middle class. Many of your lower and even lower middle class people will be renters, so being a homeowner even at 70% of median priced home would make you middle middle class.

[EvolveOrConvolve]

65. I'm not sure that you understand how deductions work

You seem to know how "standard" deductions work. TRUST ME, you will cost me money.

[hfojvt]

67. AFAIK, a person is either using the standard deduction

like 70% of taxpayers. Or they are itemizing on Schedule A. There are plenty of other deductions on the 1040, but I am only talking about Schedule A vs. Standard deduction.

[Lydia Leftcoast]

60. Your mortgage payments are only slightly less than the

median income for the U.S. If housing prices are THAT high, you're probably better off renting and investing the difference in something else.

[EvolveOrConvolve]

63. What do you think rental prices are like?

Rental prices are based in part on the underlying market value of the home. And right now, there is NO better investment than my house. It will be paid off in twelve years, and hopefully by then it will be worth half a million dollars. I'll be 45 that year, and hope to sell my business and home and retire then.

[hfojvt]

22. how much is it?

Remember that the standard deduction could be increased to $14,000 for a couple in my proposal. Would you be for it, if the standard deduction was doubled? Then it would be $20,000 for a couple? How much of a standard deduction would you need to favor it?

Doesn't it bother you that your gain comes with much larger gains for the wealthy? It's like the Bush tax cuts - a few hundred for you, a few hundred thousand or a million for the wealthy.

Man, I really need that xls file.

[evlbstrd]

42. Yes, that bothers me.

But don't push me further down while taxing the wealthy.

[hfojvt]

45. it's possible that from my perspective

you are wealthy too. A few hundred dollars in taxes isn't really gonna push you down, is it? As you pay off your house, your interest payments will go down too, maybe in a few years you will be gaining under my proposal. How high would the standard deduction need to be for you to break even?

[evlbstrd]

46. I'm not going to give you any details

concerning my deductions or general tax liability. Suffice to say I am NOT wealthy. Am I better off than those in poverty? Marginally.

[Perky]

57. I take a home office deduction

And run a business out of my spare bedroom. Schedula A deductions ar my life blood.

[Lydia Leftcoast]

61. The home office deduction doesn't go on Schedule A, nor do most of

the deductions for the self-employed. Business expenses for the self-employed go on Schedule C.

I've never yet been able to use Schedule A, since I don't own a house (and don't plan to until the math makes sense for me) and have never been able to make my combined uninsured medical/dental expenses, state income taxes, and charitable contributions equal the standard deduction.

But that's okay. I get nice deductions on Schedule C. :-)

[evlbstrd]

64. Most simplification proposals

just seem way too simple to provide true relief for the poor and working classes.

[Mythsaje]

3. It also benefits those who are self-employed

authors, homeowners, salespeople, and anyone else smart enough to use it.

[hfojvt]

6. Never helped me when I had a home

mortgage interest was no more than $1000 for me. State taxes $500. Property taxes $600. There's just no way I'm getting to $5,000. When I was partially self-employed, I got all my savings from Schedule C. How much do you usually save?

[Mythsaje]

8. MY wife does the taxes...

I'm math-challenged.

[SoCalDem]

9. Geez louise.. Our interest income is over $10K alone

your house must have been nearly paid off.. That's when you start to lose the benefit.

[hfojvt]

17. no, my entire home loan was only $28,000

I paid it off in 3 years. I could not really afford a more expensive home, especially after I lost my job. Also funny that I looked at homes that were twice as expensive, but not nearly as nice. One much smaller home had an asking price of $100,000. Granted, it was brand new, but no basement, no driveway, no yard, and about half the size and in a nothing suburb. I wouldn't pay $25,000 for it.

Granted, you cannot even get a shoebox in California for $35,000. I don't know how anyone can afford to live there.

[SoCalDem]

20. We are finding it harder and harder to live here.. In fact

we are resigned to the fact that we will HAVE to sell our house when my husband retires in a few years.. the money we get out of it will allow us to pay cash for a smaller cheaper house...but in another state probably..

If it was up to ME, we would move to Panama :)
but hubby HATES hot weather so it will probably be back to New Mexico.. I liked it there too, but 30+ years here makes it kind of hard to start over in a different place..

I guess we could take in boarders :)

[kineneb]

47. don't move out of state

there are plenty of cheaper places to live in NorCal. They may not be exciting, but they are lots cheaper than SoCal. I know, I live in one- not too hot in summer, and no snow in winter. Votes Dem., consistently.

Wouldn't leave CA except to live in Europe.

[madinmaryland]

36. Before we sold and moved to MD

we had mortgage int. of 12K, property taxes of 5K, and this was for an 80 year old house in Bridgeport CT. Plus we could add in state income taxes paid in CT. We would be screwn with the plan advocated here!

[hfojvt]

38. Not totally screwn. Don't get mad.

so you have $17,000 under current conditions. My plan would raise the standard deduction to $7000, or $14,000 for a couple. So you would lose $3,000 in deductions, or pay something like $900 more in taxes. I am guessing you have something like 3 times my annual income and probably also made my annual income or alot more in capital gains when you sold the house.

Not sure why I should feel sorry for you, but let me modify the plan - increase the standard deduction to $10,000 or $20,000 per couple. That seems awfully high to me, but should help to sell the plan. Depending on your Ct taxes, which I forgot in the first paragraph, you would be much closer to break even.

However, now that I think about it, screwing the people of Connecticut has a certain appeal to me too, since I want to punish them for giving us Lieberman for another 6 years.

[madinmaryland]

43. Re: Your last comment about Connecticut:

:wtf: has Kansas given us? Do they even have any democratic senators or rep's. There is only one Repub rep in the entire northeast. And the repub senators are the most moderate of all repub senators.

Maybe it is kansas that should be screwn!!

When we sold our home, because of no work, we did manage to make a slight profit (enough to catch up on a few bills), but also the cost of living in the NE is also much higher than the midwest.

[hfojvt]

48. I am only a temporary Kansan,

from Wisconsin, SD, and recently Iowa. In that regard, I can claim - Feingold, Tammy Baldwin, McGovern, Daschle, and Harkin. And since I have come to Kansas, now Kansas has a Democratic governor, and now two, count 'em, two Democratic reps in the House. One's a DINO, to be sure, and the new one seems to be leaning that way, but it's progress over what we had. If our Governor does well, she may defeat the odious Brownback.

[sabbat hunter]

56. my parents paid

about 10k in property taxes per year. and they certainly were not rich.

[hvn_nbr_2]

4. Getting rid of itemized deductions is basically a way to shift the burden to blue states...

where state taxes (deductible) generally are higher and home prices (therefore, mortgage deductions) are generally higher.

[David Dunham]

5. Exactly. That is why a Dem Congress will never abolish Schedule A

It would kill taxpayers in the blue states.

[CharmCity]

31. Have you ever seen a return prepared for a farmer?

Those in the flyover states also love their Schedule As.

[hfojvt]

39. the wealthier ones probably do

Nobody has opened that xls files for me yet, so I cannot read the IRS data on Schedule A filers.

Unfortunately, farmers are not a large part of red state population anymore.
The 1988 city-county data book shows
state***households***farms***%
Mt***305,000***23,570***7.7
SD***260,000***37,148***14.28
Ne***604,000***60,243***9.97
Ks***926,000***73,315***7.9

And I am quite sure we have lost alot of farms in the last 20 years, and I think SD still does not have a state income tax.

[SoCalDem]

7. Just exempt the first $50K from income taxes.. how's that for simple?

[Suich]

12. Works for me!

I'd even settle for half that!

:hi:

[hfojvt]

13. I dislike that pretty intensely.

I find it anti-progressive that a person with $20,000 and a person with $50,000 are paying the same amount of tax. Obviously that is a tax cut that benefits higher incomes more than it benefits lower incomes. It helps the people with $50,000 income to write off.

And you still need to eliminate things like Schedule A that exempt other income. In the example I gave Schedule A was at least a $644,000 deduction for a billionaire. More once he starts giving hundreds of thousands to the Heritage Foundation.

[SoCalDem]

16. Zero on the first $50 means that each person pays ZERO..

Maybe we need to raise the income for the person making 20 :hi:

[hfojvt]

19. which would mean a tax cut of $1000 for me

and a tax cut of, what $5,000 or $8,000 for a person with twice my income? Actually I have cut my income in half by retiring early - before age 45 :woohoo:

[aquart]

11. Dumb and dumber.

Increase the tax rate on the rich with a properly graduated income tax and it will work much more to everyone's liking, except the rich who will still be able to afford caviar and the occasional endangered species.

[hfojvt]

14. except they claim it is a tax increase

and voters in 1994 and in Alabama recently are not informed enough to know the difference. My way it is framed as - simplification, closing of loopholes, and a tax cut (or break even) for middle and lower income taxpayers.

[Thickasabrick]

18. I like the flat tax idea. No income tax but higher sales tax

on everything except medical expenses and food for lower income people.

[hfojvt]

21. an even worse idea

which is why it was proposed by a millionaire - because it would really help him and his kind. They buy hotels and ranches and such. Is there gonna be sales tax on 'investment'?

[Dick Diver]

52. What you're describing, I believe,...

is commonly refered to as a "fair" tax; a flat tax is the same percentage for all taxpayers (sometimes with the caveat of above a certain minimal threshold). For example, 0% on incomes from $0 - $40k and 17% on everyone above $40k, with no deductions.
On edit: corrected range value

[Thickasabrick]

59. Yes!! Thank you...it does seem fair.

[midnight]

40. What do you consider rich? It sound like a better idea than

getting rid of deductions. Getting rid of deductions sounds like the final faze of Reagan's plan for the workers in the States.

[hfojvt]

49. I thought I made that clear in my OP

and could prove it even more if I could get that xls file from the Treasury. Only rich people can afford Excel, everyone should use pdf!!

What I thought I made clear was that, like the Bush tax cuts, most of the benefits of Schedule A goto the rich. People on DU complain that they would lose $2,000 in deductions. If that's taxed at 28% that's a mere $560 increase which would only take us back to pre-Bush days, and didn't many of us support Dean, who said he would reverse the Bush tax cuts?

On the other hand, a person making $10,000,000 gets a $600,000 deduction from Schedule A, and can donate $500,000 to the Heritage Foundation and get a deduction for that. Schedule A is nickels and dimes for workers, except for better paid workers, and a windfall for the wealthy.

[Cleita]

25. Good idea. I also think we need to raise the percentage the

top 10% in income pay back to 90%. This should put a ceiling on gluttonous executive compensation at the expense of the workers.

[hfojvt]

28. same thing I have said for a while on both counts

but that would be very hard to do with their puppet in the White House and so many of their stooges in Congress. Might be able to tack on a couple more brackets though, like 45% for incomes over a million and 55% for incomes over $10 million. By not increasing rates, it is hard for them to demonize it as a tax increase for everyone. Most people understand they are not making a million a year.

[FloridaPat]

26. In 1970 I was making about $6,000 a year. The standard deduction

was somewhere between $1500 and $2500. If it had kept up with inflation it should be around $30,000 today. The gov't reaps great benefits from inflation. Everyone got pushed into higher tax bracets, but the deduction was never raised too much. The old fox is in charge of the irs hen house.

This will be the last year I get to use schedule A. I will miss it. However, I really love schedule C. That's the one for a home business.

[hfojvt]

29. that will be another selling point

maybe if I tracked the "real" value of the standard deduction over time. I cannot remember too much from back then although I have been filing my own since 1977. I do remember that the first $100 of dividend and interest income was tax free. Instead of raising that, they got rid of it, I suppose under the radar and in the name of simplification.

[praeclarus]

34. how about we just abolish the income tax?

Any takers?

edit: dang. this was supposed to be a reply to the mainline.

[hfojvt]

44. That's a bit confusing

Why would I be for that when I am suggesting the income tax be increased?

[Lydia Leftcoast]

62. Good point!

The standard deduction is supposed to be for basic living expenses, but $5,000 won't even cover most people's monthly rent.

How about making the standard deduction the equivalent of a year's work at minimum wage while gradually raising the marginal rates on the top earners and taxing unearned income at the same rate as earned income? I think that would be revenue neutral, although, of course, the rich would act as if they were in danger of having to eat at soup kitchens. (There was a classic letter to the Oregonian in which a woman complained, "I paid over $100,000 in income taxes last year, but I'm not rich." Uh, yeah, whatever.) But so what? There are more of us than there are of them.

[hfojvt]

68. Apparently only Bill Gates and people on the Fortune 400 are rich

the rest are middle class :sarcasm:

[CharmCity]

32. What does Grover Norquist think?

It wouldn't surprise me if he would like the idea of getting rid of those pesky deductions. Mortgage interest deductions, higher education credits, child care credits, etc. are some of the few tax breaks the middle class has. And make no mistake -- the whole conservative revolution was, at heart, an effort to weaken the middle and lower middle class in every way. And they've done a great job.
The wealthy will always find a way to minimize their burden. The middle class -- us -- is what pays most of the revenue collected by the government, so be careful what you wish for!
Oh, by the way... many of those "little" deductions and credits are expiring this year... the outgoing Congress didn't get around to passing an extension...

[hfojvt]

37. not all of those are Schedule A

Child care expenses is line #46 on the 1040. Education credits are on line #48 of the 1040. Those would not vanish with schedule A.

The wealthy these days have found ways to minimize their burdens by sneaking in loopholes and tax cuts that provide small benefits to middle class taxpayers and huge benefits for them.

However, I am not middle class anymore. If there is a lower class, I am in it. At least by income. Most of the rest of the lower class does not have a house that's paid for.

[treestar]

35. Raise the personal deduction

People ought to have enough to live on, and only then pay taxes.

[hfojvt]

41. that was point 3 in my OP

get rid of itemized deductions, except for catastrophic medical bills, and double the standard deduction.

Thanks to the child tax credit, as I mentioned in my 2nd LTTE, families of 4 making less than $40,000 a year are paying zero income tax. Families with two children, who make less than $37,000 a year get an Earned Income Credit as do families with one child who make less than $33,000. The credit peaks at $4400 for two kids or 2662 for one, for incomes between 11,000 and 16,400.

[Dora]

50. We benefit from itemized deductions. Our income is

We have moderately high medical expenses, so we itemize. As well, my husband works two jobs: one for a university and he is also self-employed as a musician. We must itemize his business expense/income.

If we didn't itemize on Schedule A, we would receive considerably smaller refunds, or owe.

[hfojvt]

51. why can't you use Schedule C for self employment?

If the standard deduction was doubled, it would cover $10,000 worth of itemizing.

[Dora]

53. We do. We use both Schedule C and Schedule A.

[grizmaster]

54. Item 2 is wrong

itemizing benefits the middle class most. And it also is a huge benefit to those with large uncovered medical expenses.

[hfojvt]

55. can you download the stats from the IRS to prove that?

I cannot, the TANJ thing is an xls file, otherwise I would be happy to see statistics or facts on this matter. I may even email CTJ and CBPP to see what they say about it.

I do not believe it benefits the middle class more, unless you define 'middle class' the way Republicans in Congress do, as those families making $125,000 - $200,000.

Someone quickly pointed out, and I conceded, that there needs to be an exception for catastrophic medical expenses. I meant to include that in the OP.

I still think that most middle class families get less than $10,000 in benefits from it, so that doubling the standard deduction would cover them.

[hfojvt]

58. sheesh people are resistant to change, or I am only hearing from detractors

I have some stats now - courtesy of SAUS (Statistical Abstract of the US), and, of course, I am posting them, because they back me up!!

1990 there were 112,796,000 returns filed. Of those 80,621,000 took the standard deduction. That's 71.47% of all taxpayers who a) would not miss schedule A, and b) would benefit from an increase in the standard deduction. That number drops to 69% in 1998, but that is still a large majority.

The average itemized deduction was $17,715 in 1998, but it doesn't say how many of those itemizers were couples and how many filing individual returns. A standard deduction of $10,000 per person or $20,000 per couple is going to cover alot of itemizers, well over 50% of them. So I am guessing at least 85% of tax filers would benefit or break even. And we all would benefit from not printing 80 million pages of forms and maybe 300 million pages of instructions and the time required to fill out and examine those forms.

[maine_raptor]

66. No.................Schedule A is a MUST stay in my book.

Take a hard look at Schedule A.

On it are deductions for medical expenses, mortgages, property tax, self-employment costs, chartable giving, etc.


Those are individual expenses of existing within this capitalist society; they vary by the person's situation paying taxes.

Replacing that with a one-size-fits all standard deduction no matter how high will not work. For some it won't be enough, and for others it will be a windfall.

If you want to fix the Income Tax is this country, first amend the Alternative Minimum Tax. As inflation and incomes rise, more and more middle class taxpayers are going to be hit with it, and some of them THIS coming tax season! Next I would close all corporate loopholes. Back in the 50's the corporate share of the total revenue stream from taxes was much, much higher than it currently is. That burden has now shifted to the backs of the individual payer. If corporations are to be considered "persons", then let them earn that right by paying their fair share. No more off-shore bullshit!

Finally, I would bring back the higher rates on upper incomes. Increase that and you'll pick up enough to finally start paying off the National Debt. (Gee, I seem to recall some past Prez doing that, just who was that anyways? :lol: )

Oh, as an added bonus............

Fix Social Security by eliminating the ceiling on incomes. If you are paying into SS, than everybody pays at the same rate, no matter what the amount you make.

Any other tricky problems you want me to solve before I get my second daily cup of Joe? :rofl:

[hfojvt]

69. I did look at schedule A

The only thing I think worth keeping is medical expenses, which can become a line on the 1040, less the standard deduction.

For the self employment costs it seems like there's some double dipping if those are already on Schedule C. Why give a double credit for them?

If you take a CEO with income of multiple millions, their deductions on Schedule A are close to a million dollars. That seems like a huge loophole to me. Maybe it is a loophole that also saves people in the upper middle class and middle middle-class a few hundred dollars, the same as they would be saved by a larger standard deduction.

A larger standard deduction would be a windfall for some people. That's my point. It would be a tax cut for the lower middle class - that's a selling point.

Harry Reid is still talking about tax CUTS, as Scher said, we seemed to be trapped in a tax cut=good, tax increase=bad framework. Any return of upper rates would be vetoed and Republicans and the corporate media would play it as a tax increase. Not a tax increase on the rich, but a tax increase. My plan is tax simplification which also brings a tax increase on the rich and a tax cut for the lower middle class.

[napi21]

70. My small contribution to this discussion.

You could easily move the mtg. int. deduction to a line on the 1040, thus eliminating the biggest complaint from most of you here. In fact, one line could be used for the total of mtg. int. + property taxes and be labeled Homeownership deduction.

I suspect very few taxpayers can deduct medical expenses since there is already a 7% exclusion, but for the few who do experience exceptionally high medical expenses, I suggest a spearate form itemizing those expenses into several catagories to reduce cheating.

I'm also in favor of capping the amount of charitable contributions that can remail tax deductible. Perhapse 25% of earned income, and eliminate the deduction for tangible asset deductions like someone who has a painting appraised at $2,000,000, gives it to a charity and takes that $2,000,000 tax deduction.

For fixing SS, I would suggest raising the cap. This has been done many times in the past, and Isuspect would be the easiest change to push through. I don't think it's a good idea to remove the cap all together though. One of the reasons SS haas been viewed as asocial success over so many years is because it is perceived to be fair. The average worker doesn't paya lot more into the system than they can ever expect to get back out during retirement. If you start talking about taxing all $10 million of some executive's income, it would then be seen as another welfare program.