Light-years in the past, Congress promised federal tax reform. That was
three weeks ago.
We don’t know the details, but the good news for many is that the
Standard Deduction could be doubled. The bad news is that expenses
usually itemized on “Schedule A” will be changed. Many homeowners take
their mortgage interest, real estate taxes, state taxes and donations to
non-profits, and subtract that from their earned income. It usually totals far
more than the Standard Deduction, lowering their taxable income.
The thought of losing those write-offs is probably creating a panic right
now, if we weren’t already in a panic over the threat of nuclear war.
However, it’s the loss of the state tax deduction that got my attention.
West Virginia is not cheap to live in, no matter what anyone from Maryland
tells you. The state tax rate here is effectively higher than Illinois, which
doesn’t tax any pensions or Social Security. When money you’ve earned
is clawed back by the state you live in for taxes, it is not earned income
anymore. You were just the middleman between your employer and your
government.
So in the spirit of Mitt Romney, who famously quoted an 1886 Supreme
Court case when he said “Corporations are people,” my Fantasy Tax
Reform would make that phrase true in the reverse. If Corporations are
People, then People are Corporations. We should be able to deduct
expenses the same way businesses do.
First, all operating expenses for maintaining your personhood would be
deductible. That includes all types of insurance, bad debts, all taxes,
professional services, and payments to employees (i.e. the babysitter).
Since education is an investment, tuition would be a straight deduction, not
just a tiny credit. And health is also an investment, so all medical and
dental costs paid by yourself would be deductions off the top, not the 7%
pittance allowed now. Improving our health and intellect is just like
upgrading machinery in a factory, or updating your office computer system.
By the way, interest on loans of any kind would be fully deductible.
For the middle-class, taxable income would exclude your bank savings.
Few people are likely to stash cash due to current low interest rates. But
adequate individual savings could mean fewer government programs
would be needed to support people when their safety nets fail. That’s
worth the deduction.
On the flip side, corporations would have to follow the same rules
individuals do; the IRS says if you sell your house for a profit (over a
certain amount) you’ll owe Capital Gains tax. Private individuals can’t
take a Capital Loss from a home sale, only a Capital Gain. But
corporations can sell property and equipment at a loss, and write the
Loss off their Gains. Millions of American homeowners should have been
able to do the same when the real estate market crash in 2008 put their
homes “underwater.”
Also, in my Fantasy Tax Reform, you can choose which type of
appropriations you’d like to contribute to. If the military is your priority,
check the box for BOMBS AND BOMBERS. If you want to support
diplomacy or infrastructure, check the box for BRIDGE BUILDING. If
you want to preserve the environment, UN-CHECK the box for EPA. If
you want to help repay the national debt, check BLACK HOLE. At least
this would give us a more democratic way of electing where our taxes
go, rather than electing representatives who then decide where our taxes
go.
The last item on my list really is a fantasy. You’d earn a tax credit for
every call or letter to your state representatives letting them know what
you’d like them to do on your behalf, or thanking them for doing
something you agree with, regardless of political party.
Dream on!
Anothercarolwilliams
Shepherdstown, West Virginia