Iowa House Ways and Means advances Alternative Maximum Tax. The committee voted to send HSB 215 to the House Floor yesterday. The bill would let taxpayers choose between the current Iowa income tax and a simpler version with a broader base, lower rates, and no deduction for federal taxes.
The ideas in the alternative bill are all good policy. But just adding this to the current awful income tax is like spray painting a car that’s half rusted-through. It’s extra work that does no good.
In the real world, taxpayers would compute both taxes and pay the lower one. This is the opposite of the current alternative minimum tax, where you pay the higher of the regular or alternative tax base. That’s why I call it an Alternative Maximum Tax.
If you want to simplify taxes, simplify the tax system; don’t just tack a simplification module on the existing code.
Really, though, this proposal is just for show, as they know Senator Gronstal will never let it move in the Iowa Senate. If it reinforces the idea that you can lower rates with a broader base and by taking out the deduction for federal taxes, it could even do some good. It might even get them thinking about the Tax Update Quick and Dirty Iowa Tax Reform Plan.
Filing season tip: Please Don’t Mail Your Tax Returns to the Tax Foundation (Joseph Henchman, Tax Policy Blog):
Someone mailed us their tax returns and documents today. We quickly sent it back to that individual, as we neither process tax returns nor assist individuals with tax planning or preparation. Tax documents contain a lot of private information and everyone should be very careful about to whom they send this information.
We are here for taxpayers but we are unable to assist individuals with tax planning or preparation. Our staff includes scholars who study tax policy and data, not tax preparation professionals.
Another inadvertent argument for e-filing: those returns are pretty sure to end up in the right place.
Roberton Williams, Who’s Afraid of Income Taxes? New Interactive TPC Tools To Help You Understand the 1040. A cool new feature at TaxVox:
In bite-sized pieces, Who’s Afraid of the Form 1040? discusses the main tax form, explaining the different filing statuses, who counts as a dependent, and what income is taxed (and what income isn’t). How do deductions and credits cut your tax bill and how does the AMT boost it? And how does the income tax help you pay for college, health care, and retirement?
With tax trivia (we used to file our returns on the Ides of March) and facts (just 2.9 percent of taxpayers will owe AMT for 2014 but they’ll pay an average of $6,500), the new feature explains many aspects of the income tax. It won’t make it easier to file your taxes but it might make the process a bit more interesting.
We have also updated our Interactive 1040. Inaugurated last year, this web tool allows users to examine each individual line of the 1040 and Schedule A (itemized deductions). Pop-up boxes contain brief explanations and links to distributional tables and other TPC resources on each topic.
It might be a good way to help you understand why that refund you thought you had coming didn’t.
TaxGrrrl, It’s Not A Scam: IRS Is Really Sending Out Identity Verification Letters. Letters, people, not phone calls, not emails. They don’t call without sending a letter first.
Kay Bell, What should be on the IRS’ taxpayer service to-do list? I would start with not sending billions of dollars to ID-fraud scammers.
TaxProf, The IRS Scandal, Day 679.
David Brunori, A Very Good Tax Reform Idea in Louisiana (Tax Analysts Blog).
Louisiana Gov. Bobby Jindal (R) has a tax plan that should be creating buzz all around the country. He wants to convert some of the state’s individual and business tax credits from refundable to nonrefundable. Let’s be clear: Refundable tax credits are government transfers. They are welfare. They merely use the tax code as a vehicle to take money from some people and give it to others. And apart from the earned income tax credit, no refundable credits represent sound policy.
Given that over 25% of the EITC ends up in the wrong hands, I’m not sold on that one either. David is absolutely correct on the unwisdom of refundable credits, and transferable credits are just as bad.
Tony Nitti, AICPA Sends 34 Tax Proposals To Congress
Annette Nellen posts on Need for greater tax literacy and regulation of preparers. Tax literacy, sure. Preparer regulation? Not so much. Massive simplification? Definitely.
Joseph Thorndike, Mike Lee’s Tax Plan Was Promising. Until It Wasn’t. (Tax Analysts Blog). “Are the reformicons done for?”
Matt Gardner, GOP Budget Proposal Once Again Punts Tough Questions (Tax Justice Blog)
Career Corner. Busy Season Zen: The Swish Montage (Caleb Newquist, Going Concern). Ommmm.