Monday, July 2, 2012

Bill Bischoff (Who) Writes in the Wall Street Journal About 5 Great Tax Changes

It’s in the Wall Street Journal – Hm What to Expect?

Tax simplification is something everyone can agree on.  Regardless of what one’s political leanings, no one is saying that the U. S. system of taxes is simple or easy to understand.  So it with great interest that The Dismal Political Economist saw this headline of an article.
·                                 THE TAX GUY
·                                 JUNE 27, 2012, 9:16 A.M. ET

The 5 Best Tax Changes We Won't See

Bischoff: How Congress could make the tax code simpler and fairer with a handful of easy tweaks.

But then reality set in, and The DPE remembered he was looking at the Wall Street Journal website.  Hm, wonder whom these tax changes were going to benefit?  Here is the first.

  1. Stop double taxing Social Security benefits.  The author claims this is grossly unfair, since SS benefits come from after tax contributions by the recipient into the SS Trust Fund.  So the money is double taxed.  Except it is not.  Even Mr. Bischoff recognizes that low income people don’t pay tax on SS benefits.  And high income people pay at most tax on 85% of the benefits.  Why?  See not all the benefits come from employee contributions, half come from employer contributions (not taxable to the employee, tax deductible to the employer) and part come from earnings on the SS Trust Fund.  A WSJ commentator wants to lower taxes for upper income people.  What a surprise.

  1. Eliminate Refundable Credits.  These are credits that offset taxes.  If a person does not owe enough in taxes to fully use the credit, a refundable credit results in a refund.  These primarily go to low income people.  A WSJ commentator wants to raise taxes on low income people.  What a surprise.

  1. Get Rid of Phase Out Rules.  These are rules that phase out tax benefits for high income tax payers.  The higher the income the less the special benefit.  A WSJ commentator wants to lower taxes for upper income people. What a surprise.

  1. Dump the Alternative Minimum Tax.  This is a tax that needs to be strongly reformed, not eliminated.  It is a tax paid by relatively high income earners to make sure they pay a reasonable share of their income in taxes. A WSJ commentator wants to lower taxes for upper income people.  What a surprise.

  1. Let employees deduct health insurance premiums. Most employees are able to exclude health insurance premiums from taxable income as can the self-employed.  For the few that do not, here Mr. Bischoff does not understand that a simple solution is in place.  If employers simply sponsor health insurance for their employees, but do not pay any of the cost the employer has no additional costs.  The employer can then allow employees to use pre-tax dollars to pay for their health insurance.  So no change in the law is needed, it just needs to be made easier for small employers to sponsor plans.  A WSJ commentator doesn't understand taxes.  What a surprise.

So there you have it, three proposals which help the higher income groups, one that harms low income people and one proposal that is largely unnecessary.   Yep this is what passes for tax expertise in the Wall Street Journal.  Nice going, Tax Guy.


  1. I disagree with you on one point. The tax code is not necessarily complex or hard to understand. If I wanted to, I could prepare and file my taxes in minutes by taking the standard deduction.

    It's when I want to reduce my taxable income by itemizing that things start getting complicated.

    Those who complain about tax complexity are the biggest beneficiaries of that complexity - the targeted tax deductions and expenditures that predominantly benefit rich people and corporations.

    When the WSJ and other Conservative sources talk about "simplifying the tax code", they really mean making it easier for wealthy taxpayers to reduce their tax burden without having to pay as much to accountants and lawyers.

  2. Rich makes a very valid point here. For a large majority of Americans who have only wages and salary, and maybe some interest income and take the standard deduction, or have itemized deductions only for mortgage interest, property taxes, income taxes and contributions the tax process is very simple.

    But some times even those people get caught up in the complexity. Capital gains, for example, or Earned Income Tax Credit, or the various ways in which college tuition/expenses can be deducted.

  3. This piece has inspired me to write up my own suggestions for making the tax code simpler and fairer.

    1. Eliminate all tax rates other than the ordinary income rate.

    2. Eliminate all deductions except for the state and local tax deduction.

    3. Eliminate the AMT, just as Bischoff says, but only after implementing steps 1-2.

    Wow, what a simple tax code! So when do I get my WSJ OpEd article?