In light of the revelation of the dueling GOP tax Acts I have created my own Flach Tax Plan and a new, much simpler Form 1040.
My new simpler Form 1040 that follows was not created from an economic point of view – how much tax is collected – but from the point of view of simplicity and fairness.
I have actually incorporated some of the GOP proposals in my plan. But it also contains some unique concepts –
* There is only one tax rate schedule for all taxpayers, regardless of filing status. The Head of Household filing status is gone. Married taxpayers can elect to file separately on one return or to file separately on separate returns – and a married person filing separately is treated exactly the same as a Single filer. The method for calculating the tax liability of married couples filing a joint return does away with the marriage penalty.
* No deduction would be allowed for any business activity on any tax return for the depreciation of real estate or capital improvements thereto.
* The delivery of government social welfare and other program benefits are totally removed from the Tax Code. There is no Earned Income Credit, refundable Child Tax Credit, deductions or credits for qualified post-secondary education expenses, or Premium Tax Credit on my new Form 1040. I have not done away with these benefits; they are distributed via more “normal” methods.
* I replace IRA, HSA, MSA, ESA, and Section 529 accounts with an all-inclusive USA (Universal Savings Account). All taxpayers, without exception, can contribute up to $10,000 per year.
Distributions made before age 62 for education and medical expenses or to purchase a first home (only one first home per lifetime) would be considered to be qualified withdrawals. There would be no penalty on non-qualified withdrawals after age 59½, but earnings would be taxed. All withdrawals after age 62 would be considered to be qualified.
I also replace all employer and self-employed retirement plans with a RSA (Retirement Savings Account). Employers can elect to contribute up to 25% of wages annually, all employees can elect contribute up to $20,000 of wages annually. There would be no requirements for either to contribute. Self-employed taxpayers can contribute, and deduct, up to 20% of adjusted net self-employment income.
There would be “traditional” (for the USA fully deductible and no tax on earnings for qualitied withdrawals and for the RSA employee contributions would be “pre-tax” on the W-2) and ROTH (contributions non-deductible – qualified withdrawals totally tax free) options for both accounts.
* Contributions to an RSA by a self-employed taxpayer and the deduction for the health insurance premiums paid by a self-employed taxpayer would reduce the net earnings from self-employment that is subject to the self-employment tax.
* Social Security and equivalent Railroad Retirement benefits would be taxed the same as regular employer pensions. Employee contributions would be recovered by amortizing them over the taxpayer’s life using the, what else, “Simplified Method” to determine the taxable amount of the benefits received.
* And perhaps most controversial - no charitable deduction would be allowed for contributions to a church or religious organization for religious activity. Non-religious social and community action programs (soup kitchens, homeless and domestic violence victim shelters, youth centers, day care centers, etc) run by individual churches and religious groups would need to separately organize and request non-profit status to allow contributions to be deductible. Permitting a deduction for contributions to churches and religious organizations for religious activity results in the government in effect subsidizing religious activity, which, in my opinion, is a violation of the separation of Church and State.
Click HERE to download my report A NEW FORM 1040: TAX REFORM PROPOSALS FROM A TAX PROFESSIONAL.
As always, your thoughts and comments on my new Form 1040 are welcomed. And you are welcome to share the link with, or download and copy the report to distribute to, friends, family, co-workers, and colleagues.