a tax reform proposal - get rid of Schedule A

[hfojvt]

I already suggested this in November 2006

http://journals.democraticunderground.com/hfojvt/25

and I still think it is a good idea. The Catfood Commission and Obama both endorsed the idea of phasing out some itemized deductions at higher income levels. While I support that, it seems to just add to the complexity of Federal taxes when it should be a goal to simplify them.

Getting rid of Schedule A does that. It eliminates a form, and 14 pages of instructions and complicated rules and record-keeping requirements.

Further, I now have IRS stats, showing who gets the itemized deductions and how much they get. First, I eliminate tax filers with income below $10,000 since I figure most of them are high-schoolers or retirees, since nobody can really live on less than $10,000 a year (which is a funny thing for me to say since I lived on less than $10,000 for about five years of my post college life.)

Start with the lower income tax filers, who make between $10,000 and $40,000. This group makes up 48% of all tax filers, but only 16% of them itemize their deductions and they make up 10.9% of the total value of itemized deductions (the total value is an astounding $1.3 trillion).

As a side note, about the strangeness of IRS statistics. They show that, of filers with AGI less than $15,000 that 7.7% of them itemized deductions and the average was $15,782. Tell me how somebody with less than $15,000 in income ends up with almost $16,000 in itemized deductions. The answer must be that they have non-taxable income or large savings accounts to tap into.

The next group are those with AGI between $40,000 and $60,000. They make up 17% of all taxpayers and only 41.5% of them itemize their deductions, and they get 11.2% of the total. Those two groups together are 65% of all adult taxpayers, only 22.8% itemize their deductions, and they only get 22% of the total.

First, this means that 77% of this group will not be affected by the loss of Schedule A because they already do not itemize. That is 50% of adult taxpayers. However, I have no desire to substantially increase the taxes of people making less than $60,000 a year which the loss of schedule A would do to the 23% who itemize. To prevent that, I would also propose 3 other changes. First, a deduction for 'catastrophic medical expenses'. These would be medical expenses more than 25% of AGI, and could be covered by another line on the 1040. Second, increase the standard deduction by $1,000 per person and bring back the making work pay credit of $400.

The average amount of itemize deductions for people with income less than $60,000 is $18,757. The standard deduction for a couple is now $11,400, and I would bump that to $13,400. Leaving only $5357 taxed at 15% would be $804, which is about equal to the $800 making work pay credit.

So people making less than $60,000 would mostly be breaking even. Then there's the other side. 321,294 filers make over $1,000,000, and almost 97% of them itemize their deductions. They are .28% of all adult taxpayers, but they get almost 11% of the total deductions. Since they pay at the highest rates, their deductions are also worth more. They get $141.6 billion in deductions whereas their standard deductions would be no more than $4 billion. Their itemized deductions are thus worth about $45 billion or about $141,000 per household.

The next richest group also does very well with itemized deductions. Those with incomes between $100,000 and $1,000,000. There are only 17.9 million of them which is only 15.4% of adult taxpayers, but they get 44.4% of the benefits as 88% of them itemize. They get $579 billion in itemized deductions versus the $204 billion they'd get from standard deductions. (and the $240 billion they'd get from the proposed higher deduction). That's about $118 billion a year in tax breaks going to a group that is in the top 20%.

Schedule A, itemized deductions, is a set of loopholes that mostly benefit those who are already better off. It's not worth it to give a mere $13.6 billion in tax cuts to the bottom 65% while giving $150 billion to those in the top 20%.

Ironically enough, my brother was complaining about this very proposal, which he said was being considered according to an article he read - and my brother itemizes deductions. However, I wonder if his deductions are worth more than the extra $2,800 I am proposing, and he also gets $2,000 in tax breaks for his kids, that our parents did not get. Getting rid of Schedule A would not cost him that much, it would simplify things for filers and for the IRS and would probably reduce the number of people paying the Alternative Minimum Tax.

[Warren Stupidity]

1. Another voice supporting: SCREW THE MIDDLE CLASS.

Why of course, we can't, after all, RAISE THE TAX RATES ON THE RICH, no no no no, instead, lets take away the mortgage deduction FROM MIDDLE CLASS HOMEOWNERS, to SUBSIDIZE BILLIONAIRES.

Oh FFS. Stop and think.

[hfojvt]

7. 54% of the benefits goto filers with incomes over $100,000

those people are in the top 20%, not in the middle. And that does not even figure the VALUE of the deduction (a $10,000 deduction means less to a person paying a 15% tax rate than it does to a person paying 35%) Another 50% of taxpayers do not bother to itemize because they get no benefits out of it.

[hack89]

26. A married working couple each making $60K are middle class nt

[jtuck004]

2. "Tell me how somebody with less than $15,000 in income ends up with almost $16,000

in itemized deductions. " (From the article).


Sure. One hospital stay.

[GKirk]

3. Do you think that the IRS

wants to reduce the number of people paying the AMT?

[county worker]

4. I think you have it ass backward

I don't understand the idea of "send everybody to the bottom because that's where I am."

Why not increase the standard deduction or give everyone a consumer interest deduction like we use to have? Or deduct rent payments. Give those who live on credit cards and pay rent, instead of a mortgage, tax deductions too!


If you get rid of schedule A you effectively put a huge tax increase on the middle class. The wealthy already got tax breaks by the lowering of the marginal rates. Take away schedule A and they can still afford to live elegantly. But the middle class who have an interest and property tax deduction will get a huge tax increase.


Don't bring everyone down, work to bring everyone up!

[hfojvt]

9. I suggested a larger standard deduction

And depending on your definition of "middle class" my proposal is not a huge hit to the middle class. Those with incomes between $40,000 and $100,000 are only 36% of adult taxpayers and less than 53% of them itemize deductions.

The average deduction for filers with incomes between $75,000 and $100,000 is only $22,382. The standard deduction for a couple is now $11,400. Meaning, on average they only reduce their income by $11,000 by itemizing deductions. I suggest an increase of $1,000 in the standard deduction, which would knock that down to $9,000.

They pay tax at the 25% rate, so their taxes would go up by $2,250. Subtract the making work pay credit and that's only $1,450. That's for people making $75,000 to $100,000 which isn't really middle class, it's on the high side of "middle". 74% of adult taxpayers make less than $75,000, which puts the people above that in the top 26%.

[FSogol]

5. Dude, Schedule A are all the exemptions for the middle class.

:wtf:

[hfojvt]

6. define middle class

did you look at the stats I presented? The benefits of itemized deductions are skewed upwards.

[county worker]

8. That's because you have to spend money to get a deduction for the spending.

How many of the unemployed worked in the housing trades? The mortgage interest and property tax deduction help to improve the housing market. If more people could buy a home more people would be put back to work repairing or building homes.

Most deductions are tax policy to encourage some type of behavior or spending. Tax policy is just as important as monetary policy.

By giving a itemized deduction you force someone to spend as apposed to give a marginal tax reduction. It is the encouragement of spending that is the tax policy.

[hfojvt]

10. so giving millionaires a $140,000 tax credit will trickle down?

It really works out to a subsidy for higher income people.

Seems to me that if the government got that $140,000 that they could hire two teachers who would go out and buy homes.

[county worker]

13. You obviously don't know what a deduction is.

It is not a tax credit. You spend money before you get the deduction. If you don't spend the money there is no deduction.

No matter how wealthy someone is, if they spend money to purchase a home, the building of the home creates a need for construction which creates a need for construction workers. Also all of the purchases for the home like repairs and do it yourself projects creates jobs because of the increased demand for the products needed.

It isn't trickle down! Again, the spending is like a stimulus. You give someone an incentive to spend by giving them a reduction in their taxes for spending the money. The economy will not improve as much if you eliminate schedule A.

Spending is what stimulates the economy and schedule A encourages spending.

I think you look at it as if those who get a deduction get something you don't get so screw them! That's a kin to shooting yourself in the foot!

Increase taxes on the wealthy but give them the deductions for spending and you help all of us!

[hfojvt]

19. all of that verbiage is just an argument for trickle down

Your bottom line is just saying that giving rich people tax breaks is gonna benefit all of us poor working people.

You think that if rich people no longer get tax breaks that they are gonna stop buying mansions for themselves or paying for their own medical care or paying property taxes? Oy.

[sinkingfeeling]

23. What rich people? We're talking about the middle class: those with incomes between $21K & $89K.

If you drop the lowest 20% (less than $21,000) and the top 20% ($88,658 and above), that leaves 60% of the population or the 'middle class.'

How does your plan for everybody to take a standard deduction apply to single people? Do we get the same deduction as a home-owning couple? Or in your world, does it cost less to buy a house if you're single?

[hfojvt]

29. again, most of those people do NOT itemize

Only 33% of tax filers with income between $20,000 and $75,000 itemized their deductions.

So 2/3s of the middle class would not be affected by the loss of Schedule A. And those people are mostly on the lower end of the middle class. Itemization rates go from 10.5% at $20,000 to 56% at $75,000.

Once again, proving my contention that the beneficiaries of itemizing are at the higher end.

Yes, a hypothetical single person taking $16,000 in itemized deductions might face as much as $1,000 tax increase. Chances are though, such a person would be making over $30,000 a year though and doing quite well anyway.

I still think that it's a small price to pay to eliminate a bunch of loopholes that provide so much more benefits to the rich.

It's kinda tough to come up with a perfect plan.

[sinkingfeeling]

33. So what if only 1/3 of the middle class itemize? That just means that they spent more money on

certain things that keep people employed than the the other 66%. I say eliminate 'standard deductions' and let everybody file 'real' amounts. If you only have $750 in home interest, that's all you get. (Not really, but makes about as much sense as your plan to hit millions of middle class people with thousands more in taxes).

[hfojvt]

34. ah no, it does not mean that at all

certain expenses are deductible on schedule A. Those things do not create any more jobs than any other expenditure. Spend $400,000 on a house and get to deduct the mortgage interest does not create any more jobs than spending $400,000 on pre-made pudding snacks or on satellite dishes - expenditures which would not be deductible. It just that, for some reason (one being to encourage home ownership) the government decided to subsidize some expenses and not to subsidize others.

And it is not thousands more in taxes. With the increase in the standard deduction and the making work pay credit that I proposed, many people, on the lower end, would get tax cuts. Many of the middle class people who itemize would pretty much break even. Those who make less than $40,000 a year have an average itemized deduction of less than $16,000. Those who are married, a substantial majority of the population (not including myself) are only saving $690 on their taxes by itemizing. Less than the $800 making work pay credit. So average middle class couples would be breaking even, or gaining under my plan.

A single person would be saving $1,545 in taxes by itemizing at the average level. Some are no doubt itemizing less than that average and some are itemizing more. That hypothetical single person would be paying another $995 in taxes. Not thousandS, but less than $1,000.

Not something I think is ideal, but I don't think it is worth it to preserve $18 billion in tax loopholes for people making over $10,000,000 a year just to save a few thousand single people a thousand in taxes. It's not like a single person with an income of over $30,000 is the neediest of the needy.

I think this whole discussion has been ironic. 69% of the deductions goto people with income over $75,000, and yet people who supposedly care about the poor and the working class will jump in to defend to the death this tax break for rich people.

It's a brilliant system for the rich, and it shows how the Bush tax cuts got extended. Just tie every $1,000 of tax breaks for the rich to a $1 tax break for the middle class and those middle classers will be all in favor of it, counting their $800 tax cuts and absolutely refusing to give them up.

[sinkingfeeling]

35. Really, based on using a single tax deduction & exemption in 2010 instead of

itemizing my deductions, I would have paid an additional $5454 in federeal taxes.

Your problem is that you refuse to define the middle class as those actually in it. Persons making $75,000 a year are not rich.

Obama's plan to limit deductions on those actually in the top 2% makes much more sense.

[hfojvt]

39. so you get a tax break of $5500

and you want to tell a person (myself) whose AGI is $13,335 that you are NOT rich?

Obama's plan to limit deductions to the top 2% just makes Schedule A that much more complicated, and it also leaves a whole bunch of deductions for some fairly wealthy people. Those making between $60,000 and $200,000 get 49% of the itemized deductions

A PERSON making $75,000 is not middle class. 74% of adult taxpayers make less than $75,000 and that includes a whole lot of married couples filing jointly - many, many households with two incomes make less than $75,000.

Myself, I got a $1500 tax break from the Bush tax cuts last year. Even though that put over a thousand dollars in my low income pocket, I think it was wrong. Last year I didn't take my $700 refund. Instead I applied it to this year's taxes, effectively lending almost $1,000 to the Government at zero percent interest. I WAS prepared to do that for as long as Obama was President. But this year I am demanding my $1700 refund because Obama threw me under the bus by surrendering on the Bush tax cuts.

Not to mention that I spent about $3500 of my own money running for Congress.

If you make $75,000 a year, you would seem to be 5 times better off than I am and also far, far better off than the thousands of people applying for $7 an hour jobs at McDonalds. Far better off than them, even if they get a job. I bet if somebody, like the Duke brothers, could swoop in and offer them a $75,000 a year job, they would think they had just won the damn lottery.

But God forbid anyone ask you what you can do for your country. According to Somerby "middle-class tax increases, the kind of tax hikes a wave of liberal analysts, including Paul Krugman, have said will be required."

I am not sure if that is really true, that middle class tax increases are necessary, but it probably is necessary to stop pretending that the UPPER middle class defines the middle class. If a household making $50,000 a year is middle class, and according to the statistics it is, then a person making $75,000 is not really in the same class any more.

[sinkingfeeling]

40. Aha, now I understand you even better. You agree that people

should all be limited in how much money and/or benefits they should be able to make. Disregard the differences in education or experience. 'If I can't make that much or have a pension, then nobody should'. Sound familiar?

Did you write into the paper recently? There's a guy here who thinks all air traffic controllers should be fired immediately and that he, with his GED should be offered the job.
You have decided that you, and you alone, can determine who is middle-class or not. You throw out the accepted definitions and subsitute your own.

Edited: Just saw that you said you don't pay federal income taxes because of your low AGI. And then you accuse me of getting a $5454 tax break! I pay more income taxes in a year than you make, and should give up the home mortgage deduction?

[hfojvt]

41. when did I say that?

and BTW, I happen to have a master's degree. You?

You think I wouldn't love to pay $15,000 in federal income taxes? That "Trading Places" with you wouldn't make me feel a billion times better off?

Yet you seem to think I am a lucky ducky somehow.

The "accepted" definitions are full of crap. I didn't throw them out, I used my education to PROVE they are full of crap. You dispute the proof because it doesn't fit your self image somehow to admit how well off you are compared to the rest of the country. It's gotta be tough, somehow, admitting that one is rich. I can sorta sympathize. Or not. Heck, even I am rich enough to have donated $55 to the local Democratic party last week, including gas for a road trip to Lawrence and back, plus a large pizza. Didn't buy anything at the silent auction though. And I am sitting here looking at two desktops with a laptop at my feet.

Yes, you should give up the home mortgage deduction, but don't worry, you won't have to. Your rich friends control the airwaves and nobody is even gonna hear, much less listen to a dumbsh*t janitor even if he does know a lot more math than Chris Matthews or Rachel Maddow.

[sinkingfeeling]

44. Good-bye. I don't deal well with egotists.

[sinkingfeeling]

11. You skipped a whole group of people from $60K to $100K. You seem to be 'redefining' the middle class

to suit your own arguement. And, you seem to be in envy of people who have home mortgages. Why don't we start with eliminating tax credits for children and their care? Makes about as much sense to me.

We need to make the the top 5% pay a higher rate and make corporations put up some tax money.

[hfojvt]

15. yeah, but my piece was clearly already too long

Also, I never defined middle class until later, and still believe that the people in the top 26% are not the best examples of "middle".

For your erudition - those making between $60,000 and $100,000 are 19% of taxpayers, 62.8% of them itemize and they get 22.7% of the benefits. The average itemized deduction for the top group, making between $75,000 and $100,000 is just $22,382.511 saving them a whopping $2,745.

Compare that to the people making over $10,000,000. Almost 99% of them itemize deductions and their average deduction is about $4,000,000. Saving them $1,400,000 in income taxes. Total for the group, almost $19 billion.

To me this looks like the Bush tax cuts all over again. Give $1,000 to the middle class, mostly upper middle class, and give a million dollars to the very rich. And the middle class will give up the tax break for the wealthy when you pry it from their cold, dead fingers :crazy:

[ItNerd4life]

12. Much simpler idea to simplify the tax code

Make all congresspeople and the president have to fill out their taxes themselves.

Will make the tax code very simple and then it's easy for working people to understand it and then start to make changes to make the wealthy pay more.

You know, the KISS theory.

[Warpy]

14. Yeah, SCREW THE MIDDLE CLASS SOME MORE

because the author doesn't like having to add up his deductions.

Most years I take the standard deduction. Itemizing saves my butt on the years my medical expenses skyrocket and during the years I took the mortgage interest deduction.

Simplifying things for Joe Taxpayer always ends up screwing him. Remember Reagan? Our taxes would be so simple we could send them in on postcards!

I'd rather simplify things for the wealthy and corporate filers by eliminating all their sweetheart deductions from Congressmen they bought.

[hfojvt]

16. the middle class?

Also, I happen to be the author, and I never itemize because my itemized deductions have never been more than the standard deduction.

Only 27% of tax filers with incomes below $75,000 itemized their deductions in 2008. That is 74% of all adult taxpayers and they only got 31% of the total deductions. 69% of the deductions went to people making MORE money than $75,000 - those in the top 25%.

Not to mention that a deduction is worth more to somebody paying a higher rate.

The middle class simply is not the primary beneficiary of itemized deductions.

[BobbyBoring]

20. I beg to differ

If the mortgage interest deduction was removed, very few could afford their homes. We pay about $1,200.00 in interest every month on our mortgage. That's a big chunk of change. Most of us also got screwed years ago when they took about all interest deductions away except mortgage.

Screwing the middle class (or what's left of it) is not the way to go.

Now, if schedule A was removed from those earning more than say $1,000,000.00 a year, it might make sense.

[hfojvt]

27. if you are paying $1,200 a month in interest

then you are pretty rich.

I hate to tell you that, but $1200 a month is $14,400 a year and my own AGI was $13,335.11

Even IF you have another $11,400 in itemized deductions, that mortgage interest deduction is only saving you about $300 a month, assuming you pay tax at the 25% rate.

Removing the mortgage interest deductions is not gonna make homes significantly less affordable. If it is replaced by another $1,000 per person for the standard deduction and the making work pay credit, then most of the middle class will gain or break even.

[yawnmaster]

32. $1200/month mortgage and one is rich?? that is rich.

If you are paying under 1200 in CA, you've either had your home a long time or had the cash for a big down.

Removing the Mort interest deduction is going to screw many Californians, at the least. (and most of them are not "rich")

[SoCalDem]

37. amen.. we paid 13K in interest last year

:(

[hfojvt]

47. I went house hunting in California

and found a bunch of houses for $1. Must have some property tax liens on them or something. Still, the fact is that many people in this country simply could not afford to pay that much interest.

[Warpy]

25. When you get a mortgage

and start having heavy medical expenses because you're waiting for insurance to kick in at your new job and your kid has gotten into an accident on his bicycle, maybe you'll realize how those deductions do still benefit the working middle classes.

Until then, you're coming off as someone who simply hates adding them up.

[hfojvt]

28. I have had 3 mortgages

not including the two mobile homes that I bought for cash.

I can have tons of medical expenses and itemizing is not gonna do me a damn bit of good, because I already make so little that I don't pay any taxes.

I calculated the tax statistics that show those deduction don't benefit most of the lower income working class.

My mortgage interest was never more than $1200 a year (yes a $28,000 mortgage at 5.5% on a 5-1 ARM) and property taxes about $800. It's a long way to $5,000 and I was never gonna make it.

But I may have never made the middle class either.

* Okay, I was wrong about the mortgage interest. It was $1,378.82 in 2002, $1,082.67 in 2003, 557.03 in 2004, and $171.99 in 2005 and 2.86 in 2006. I looked it up. So it was higher that $1,200 once.

[county worker]

17. Are you old enough to remember how they simplified tax returns by

eliminating the consumer interest deduction? The OP probably doesn't. The OP is oblivious to anything that doesn't fit the soak the rich meme.

[JoePhilly]

22. Ragan also dropped the interest on Student loans at the same time.

Both of which made it harder for a poor kid to go to college.

The wealthy simply restructured their debt.

[Warpy]

24. Exactly, which is why I mentioned Reagan and his simplified taxes

He simplified all the deductions the middle class could take out of existence while Congress went ahead and passed all the sweetheart cuts for their fat cat masters.

Beware of anyone trying to simplify things for the middle class. It's always a screw job. There are no exceptions.

[SpiralHawk]

18. Can the freaking 'self-employment tax' (penalty for being independent)

totally skankulous...

[Curmudgeoness]

30. Sure, why not do more to destroy SS and Medicare.

The self-employment tax is the same as you and your employer both paying into SS and Medicare, except that "you" are the employer.

[mmonk]

21. I support deductions and a return to a scaled progressive system

of taxation. The people who are not rich are going to get the crap knocked out of them with losses of mortgage interest deductions or loss of itemizing medical expenses. Do billionaires really carry mortgages for example? Is their health insurance costs a burden to them?

[dems_rightnow]

31. It's people who DON'T itemize that get the break.

If you itemize, you deduct money you actually had to spend.

If you don't itemize, you get the standard deduction, which is MORE than you spent.

[Lydia Leftcoast]

43. Uh, the standard deduction for a single person is $5700

I spend WAY more than that in a year.

[dems_rightnow]

54. Uh, not on

mortgage interest, contributions, and taxes. If you did, you'd itemize.

[Lydia Leftcoast]

55. The deduction is supposed to be for all expenses, not just those on Schedule A

That's why you get a larger standard deduction if you're married and/or have children.

The standard deduction for a married couple filing jointly is about twice that of a single person, and for a single person with a child, it's about 50% more.

Admittedly, it REALLY hasn't kept up with inflation, but a married couple isn't necessarily going to have twice as much of a mortgage as a single person, nor will a single person with one child have less of a mortgage than a married couple with no children.

Besides, it's not worth it to file Schedule A unless your qualifying expenses really are more than the standard deduction. I think I've filed it once in my entire life.

[SoCalDem]

36. People with high incomes, often do not draw a "paycheck".. Their "income" is often

in sales of possessions, investment transactions, interest from trusts & bonuses /stock options..

With a clever accountant and some "charities" they will always figure a way to wiggle out of paying ..

[hfojvt]

45. are you supporting me here?

Because "charities" are deducted on line 15 of Schedule A. Thus, David Koch gets to take a tax deduction for his contributions to the Heritage Foundation. It is Schedule A that gives those people a place to wiggle and their average itemized deduction is $4 million. Not a bad little tax break that, paying a 0% rate on $4 million in income.

[SoCalDem]

52. The problem is not so much Sched A, as it is the threshholds and open-endedness

of so many loopholes.

The richer one is, the more likely they will be to have pricey accountants & tax advisors to "guide" them into paying nothing.

With the deductions we (as ordinary people) get, we still end up paying a quite large percentage of our income in taxes, because we are not rich enough to claim any of the really "juicy" ones..

For us, it's mortgage interest, a few donations to charity, and some car expenses for my husband's job, and that's pretty much it..

[dawg]

38. With a drastic increase in the standard deduction this would be a good idea.

With the miserly $1,000 increase you suggest - not so much.

But the OP is right about one thing. Schedule A benefits the rich much more than the middle class. And among the middle class, it tends to reward those who purchase homes they can barely afford at the expense of those who choose to live more modestly.

Raise the standard deduction to something like $20-25K and then abolish Schedule A. It would make everyone's life easier except the rich. (And a few overly-indebted members of the upper middle class)

[hfojvt]

46. I hate to increase the standard deduction too much

and $20,000 definitely seems excessive. I think the government benefits from withholding even though it does not cost taxpayers all that much. The making work pay credit of $400 works out to a deduction of up to $4,000 depending on what tax rate a person pays. That could be increased to the $500 that Obama originally campaigned on.

[WCGreen]

42. The ATM kicks in after 100 k for most people and lowers the effect

of Schedule A for those at the top...

How the people at the top brackets is because of Tax Free transefers of wealth via the Estate Tax and also by having investment income taxed at between 10-15% no matter how high your income grows.

[hfojvt]

48. you meant the AMT

but that is just more complexity and Congress keeps passing multi-billion dollar patches for that as well.

But, yes, I have written about that dividend nonsense before http://journals.democraticunderground.com/hfojvt/81

[WCGreen]

53. I did mean AMT...

I do taxes for a living. Since it reaches down lower and lower each year because it wasn't indexed for inflation and they won't fix it is why most of the tinkering occurs.

[Spike89]

49. The assumption that simplifying the tax code is good is wrong

A flat tax (the most simple code possible) is terribly regressive. Progressive taxation involves much more than crafting a number of tax brackets. The tax code is where a responsible government can gain some control over the excesses of raw capitalism. Essentially, tax breaks are the carrots the government can use to encourage "good behavior" and taxes are the sticks used to punish poor behavior.
For example, it makes good policy to offer tax breaks to businesses with U.S. payrolls. This can lead to companies investing in labor. However, that really only works if the alternative for the company is actually paying taxes on the money. Thus, the best way to contain/control the greed of the corporations and rich investors is to tax them at insane rates while also offering them abundant loopholes for spending/investing their money in beneficial ways.
Simply put, if you could make $10 million dollars being a greedy bastard (say by cheating your employees), but had to pay $9 million in taxes, you might consider being less greedy, having your company "only" gross $9 million (by paying another $1 million in payroll) taking the $1 million tax credit.
Idiots would say the second example "lost" $1 million dollars, but really it isn't true--the total loss net is about $100,000, ($10 million - $9 million in taxes = $1 million net vs $9 - $8.1 million in taxes = $.9 million net). Now, if there is a special tax benefit targetted at employment, say worth $101,000, the company actually comes out slightly ahead, has a happier and presumably more efficient workforce (either more workers or better paid/qualified ones). The government does give up that $100,000 in potential revenue, except that it does get some of it back by taxing the workers (if the workers pay 10% of that million in taxes, the government ends up basically even) AND there are a number of workers not requiring government assistance.
This all works IF there is a real threat that taxes will be due. When corporate rates are so low that virtually all corporations can write off all their profit, you no longer have a stick and the carrots have already been consumed.
In short, the answers are to raise taxes steeply on the higher tax rates and simultaneously offer big breaks (loopholes) for spending the profits on things that help everyone out.

[Yo_Mama]

50. Think again

For example, a person with sky-high medical bills needs to use Schedule A to deduct those.

We should never get ourselves in a situation in which we are taxing income that a person needs to support life itself.

[haele]

51. The problem with Schedule A is that it is confusing and that income is not consistently defined,

Not that itemization is bad. To identify "middle class" as a percentile of one particular type of income taxed at a specific rate is not helpful, either.

Being working class in your "next bracket better than 48% of the rest of the underpaid or unemployed taxpayers in the US"- and definitely not "middle class" - in a high cost of living area where watching every single penny can be the difference between a reasonably safe and secure roof over one's head, medical care for the disabled member of the household, and food in the pantry, I do take exception with the apparent thinking that I'm in a better position to "give a little more" and am little "better" that the rich can be soaked for the taxes they avoid.

There have been years that we've itemized, and there have been years that we haven't.
And there's been just as many years we've "owed" in such a way as to cause serious financial difficulties because I either didn't keep up with my paycheck deductions/exemptions when figuring my spouse's SSDI (yes, I have to figure SSDI in on our income taxes) or medical expenditures changed (new meds, different doctor, therapy that worked) and suddenly we were short a hundred or so dollars to have paid out enough of a percentage of household income in out of pocket medical to itemize.
That can become a difference of $1K - $2K in tax "liability" on the previous year. That Schedule A is a home-saver - in the years we can use it.

I suspect that it is only little changes - a change in or imposition of increasingly higher percentage of deductible medical costs and changes in approved deductibles is why more working class people don't itemize, just as people dropped out of itemizing when interest payments started getting less back to them.

There have been times where the wages would seem to be good enough, but real expenditures; a sudden residence move, a legal or a medical issue, short term unemployment, could wipe out any savings and send an otherwise financially healthy family towards bankruptcy. This is what should be covered in something like a schedule A.

I agree as it is, Schedule A is too confusing. It needs to be changed so people don't give up or get into trouble when they have to try and figure out "if you paid X% in State and Local taxes, but took in Y% of Social Security or IRA early disbursals, and you worked as a consultant for more than 6 months from home, you can only consider Z% of your medical and educational expenses as deductions..." (no, this isn't what it actually instructs, but there is a lot of balancing categories to find out what percentage you can deduct)

rant off ***********************

I'd propose that, especially since most people can electronically file, break it down into separate sections in the normal 1040 that people can pick for their particular situations (like income is broken down in the Wage section), say, as follows:
Wage Deduction section:
Deductions A1 - Mortgage interest, Home Improvement subsidies or interest, and Property Taxes deductions on primary residence for residential purposes only.
Add a flat deduction for Primary residential Rentals like some States do(as your rent will most likely include a percentage that pays property taxes, management, and interest for your landlord), and add Insurance (homeowners and rental) deductions to encourage responsible home ownership and maintenance. Home Improvement program subsidies should remain for green improvements, like solar or wind-turbine, grey-water irrigation, weatherproofing and insulation - not for adding a second story wing or fancifications like turning your perfectly decent kitchen into a Tuscan Villa kitchen with tile backsplashes, granite countertops, walk-in pantry, two dishwashers, oversized freezer and ice-maker, and a JenAir high temp gas jet stove...
Most home improvement and insurance records can be found online. Even most people's rent can be found online; if not - we keep receipts or a lease. (Oh, and vacation or income property should not be tax deductible.)

Deductions A2 - Medical deductions. Basically, anything you can pay for on an FSA account (pre-tax re-reimbursed money) for that year should be tax deductible. And not a percentage based on your income either. It doesn't matter if you make $20K or $200K, $50K in medical expenditures hurts bad in a year, and it's not fair that some people who have the ability to tap into a FSA or other medical savings plan can get a tax break that other equally needy people can't. You should be able to use an FSA to pay for the medical situation up front or take the deduction when it comes to tax time.

Deductions A3 - Education/Career Training Expenses. Include certification dues/costs that are necessary as part of one's employment.

Deduction A4 - Public Transportation expenses - for those who buy monthly bus or other public transportation passes for school, work, or medical purposes and do not get reimbursed through work or other agencies.

Deductions A5 - Retirement, long-term education and health savings accounts, and long-term care planning -

Deductions A6 - Paid State, Local, and Foreign Taxes and Fees. If you need to put last year's refund from your state on your income, you should be able to take the taxes and fees you paid off for this year.

Sales tax is a conundrum. Most times, I only see it deducted if it's part of a business expense. However,basic, necessary shopping (OTC medical, household sundries, utilities, baby stuff, cleaning gear, clothes - or food, in some places) for the family can end up being well over $70 a month that is going back to the state or municipality and should also be deductable. But
It's not the same as buying a Lexus or a 56" LCD TV, but it's often viewed the same when the bean counters look at the cost of living and where taxes should be targeted.


If the IRS will incorporate the "necessary" deductions, they can even possibly drop the standard deduction some without hurting anybody - because now they are including the deduction of real costs that most people incur just by living and rewarding a more socially beneficial lifestyle that will encourage people to think about investing for the future.

And it should also end up simplifying things, even though it may seem complicated to begin with, because the deductions are right there and identified.
Honestly - Most people don't pick up the Schedule A/B form. Because they want it easy, and they forget that the IRS isn't going to give you back money you're entitled to just because you don't feel like itemizing.

I suspect that most of those people in your article who don't itemize probably are actually owed money because they don't itemize.

Y'know, the Ides of April really shouldn't be about punishing those who can "afford to pay taxes" into paying more taxes, it should be being a citizen and helping to keep our infrastructure healthy.

Because we don't have the ability to run off and live in a frontier where we can individually depend on our native cunning and "our bootstraps" for success anymore.

Haele