Some interesting tax code nuggets

I know. You barely read this blog and having a post about taxes is NOT helping my case but hold on a sec! Celine over at Feministing was able to interview Annette Nellen, director of the Master's taxation program at San Jose State University, about Obama's new tax code changes. There were a couple very interesting grains of hard-hitting truth she says that are going to make some people very uncomfortable.

Sometimes people, including members of Congress and the press, refer improperly to the "IRS Code" or say that the IRS denies a deduction. This tends to shift blame for things we don't like with the tax system or the law to the IRS when it is Congress that writes the tax statutes.
Can you explain the tax code announcement President Obama made earlier this week? What are the overall goals of the administration? How will these changes affect the everyday person? And do you think they're needed?
These proposals will affect anyone with foreign investments and business activities. If the tax haven proposal can bring in tax dollars that today are not collected because of improper sheltering, that helps everyone. The business tax proposal also affects everyone indirectly because the ability of U.S. companies to effectively compete in the global market is important to the U.S. economy.

Are there any particular tax code changes that will affect and/or benefit particular women in the U.S.? Working-class? Immigrant? Single moms?
President Obama's tax proposals aim to prevent tax increases for 95% of individuals. That is a very broad benefit particularly when we are facing trillion dollar deficits. (Ed. Emphasis added by me. This makes me uncomfortable.)

A tax system tends to be more efficient and simple if it has few deductions, exclusions and credits. With fewer tax breaks, the tax rates can be lower which also provides a benefit of reducing the desire to engage in tax planning to further reduce one's taxes. A system with fewer special rules also increases the perception of fairness and respect for the system because people are not thinking that someone else is getting more tax breaks than they are.(Ed. Remember this as you read on.)

In addition to the federal tax system and proposed changes, people should also be looking at state and local taxes. Almost all states are facing budget shortfalls and have enacted or are considering tax increases. These tax increases tend to be the easy ones of raising rates rather than removing or reducing deductions. Sometimes these types of changes can have a more burdensome impact on low-income individuals. For example, to help address a budget shortfall, California recently increased its sales tax rate by 1 percentage point. In many places in the state, the rate is now 9.25%. This is the highest sales tax rate among the states. California's sales tax system is out-of-date in that it primarily applies to tangible personal property (other than grocery store food). It does not apply to digital downloads, entertainment and most services. Thus, "Laura" who buys laundry detergent and rents a DVD pays sales tax. In contrast, "Hannah" who buys music for an mp3 player, a $300 concert ticket and has her clothes dry cleaned pays no sales tax on these items. Adding to the unfairness is the fact that Laura probably has lower income than Hannah.

What did you think about the "Tea Parties" that took place on and around income tax filing day last month?
While called tea parties, these protests seemed to be voicing concern over government spending (rather than particular taxes per se) and took place on April 15 rather than the historical date of December 16 (1773). I think it is good to see people getting involved in looking at what their elected representatives are doing. I hope people will also get details about the spending, who and what it is benefiting and write to their representatives to express specific concerns or new ideas.

Everyone gets benefits from the government in some form. It might be public schooling, roads, police and fire protection, government subsidies for one's home mortgage or health insurance coverage, energy credits, and more. Many people are benefiting from the stimulus money in that it is helping to create jobs, provide tax credits or stimulus payments to about 95% of individuals, and reducing state tax hikes.

What specific spending do people want to see cut? The answer should include not only direct government spending, but also the spending that exists in the tax law. Special deductions, exclusions and credits, such as for alternative fuel vehicles or a home mortgage, are a form of government spending. (Ed. Emphasis by me.) For example, the government can subsidize a person's home mortgage by writing them a check or by giving them a reduced tax bill - both are spending. What specifically are people willing to cut? I think people must include on that list not only spending that benefits others, but spending that benefits them as well. That is where the task gets challenging.

How many teabaggers, or anyone else, would be willing to say bye-bye to their tax credits for buying a house or having kids to help make the tax codes simpler and more fair for everyone? Yeah. Exactly. Anyway, go over to Feministing to read the full interview!