Thursday, February 7, 2013

Simplifying the tax code - step 1 of many

There's no doubt our tax code needs some simplification. Despite running a risk of eliminating my livelihood, I have decided to commit my personal suggestions about how to simplify the tax code to writing.  And I am putting it out on this blog for the whole world (or a dozen of you, anyway) to read.

The general concept of my ideas is to apply a cost-benefit analysis to various tax provisions.  Provisions that affect a small number of people are the first to go.  Provisions that have a small dollar impact to individuals should also go. Provisions that are extremely complex to understand, because of exceptions as to who might qualify or how a deduction is calculated may also have to go.

First up is the above-the-line teacher classroom deduction.  This is a maximum $250 deduction for teachers who spend their own money on items for their classroom. Now, I don't have anything against teachers. I have many close friends and relatives, including my sister, who are teachers. They are great people and have a very important job.  But to add an entire line to the front of the 1040 for a $250 deduction is ridiculous. Teachers can deduct their unreimbursed job expenses just like everyone else, on Schedule A, as a miscellaneous deduction.

There is an implied importance of a deduction or a credit having it's own line on the 1040. Other items in this section include IRAs and items that allow for thousands of dollars of adjustment. Reserving a line for a $250 deduction is like playing Monopoly with the one dollar bills. It's insignificant. Teachers will disagree, I'm sure. The effect on a teacher's refund is around $38 to $63 (depending on their tax bracket) and no one wants to give that up. But in the grand scope of things, getting rid of this line is a great start to simplifying the tax code.