ARE YOU PULLING your hair out as you subtract line 34a or 34b, whichever applies, from line 33? Are you troubled by, "if this line is less than $10,000, see 'earned income credit' (line 59) on page 16 of instructions. If you want the IRS to figure your tax, see page 12 of instructions."?
Cheer up; relief may be on the way.
In his State of the Union address, President Reagan endorsed tax reform. Citizens for America, a lobbying group, has just mounted a massive TV campaign for simplification. And many columnists and editorial writers call for both.
And now, in the heart of tax strangulation season, two new books make compelling pleas for dramatic changes in our system. Accountants, lawyers, financial planners -- all of us -- should be interested in The American Tax System and A Citizen's Guide to the New Tax Reforms.
In the first of these, Barry Hershey makes a forceful case for complete tax overhaul. Using his practical background as foundation -- he is president and chief executive officer of a leading insurance company -- the author patiently walks us through the need for reform, his proposals for tax improvement and the more-than-token revenue that would result.
Basically, he argues that the present tax jungle is confusing (5,600 pages of regulations), costly (millions of taxpayers shell out huge sums to H&R Block and others) and distortive (high marginal rates discourage investment and hard work).
As the author states, "The government takes up to 50 percent of wages earned from marginal work (and) similarly, the return on saving and investment istaxed at a 50 percent rate by the government. As a result, the individual receives only a small percentage of return from his initial earnings."
A table clearly shows "the dismal mathematics" under which $10,000 in earnings may produce only $225 (no misprint) in after-tax investment return.
Worse yet, Hershey claims that the system damages our economy, stimulates political pressure groups, encourages tax cheating and creates disincentives to save and invest. (A recent survey, not in this book, found that 1 person in 5 admits to income tax cheating).
How repair this damage? Briefly, the author proposes to reduce individual and corporate marginal tax rates and also to simplify the system by replacing current tables with a single, simple table; by eliminating all exemptions and deductions for individuals and businesses; and by substituting lost revenue with increased collections from hefty taxes on gasoline, electricity, alcohol and tobacco.
Conceding that "Social Security is a valuable social program and deserves support," the author believes the current funding method is "inequitable and detrimental to the economic health of the nation . . . and inadequate." He would replace reliance on employer and employe Social Security contributions with a tax on gasoline.
And what a tax! The book's shocker comes in a proposal to add a $2-per-gallon tax to gasoline prices, raising gasoline from approximately $1.30 to $3.30 per gallon. And "while this price might seem extreme to American motorists . . . it would bring American prices closer to those in Europe and Japan." It would be phased in over five years.
The author lists other gas tax benefits: ease of collection at the pump, reduction of oil imports, and inflation control by reducing demand for oil.
Hershey concludes, "The American people have a unique opportunity to improve their destiny through reform of the tax system. The time to act is now."
IN A Citizen's Guide to the New Tax Reforms Joseph Pechman has edited a compact book that pulls together many key tax reform proposals. In all the plans, we find agreement that the tax base must be broadened by lowering rates and eliminating many deductions and credits. "The broadened tax base would then be used," the editor's introduction states, "to reduce tax rates across the board."
"Taxpayers would simply add up all their income, subtract their personal exemptions and unusual expenses, and calculate their tax from a tax table or the schedule of tax rates."
Many advantages accrue, namely, that such a plan treats all people with the same income the same way. Also, the broadened base would improve economic efficiency, while reducing administrative and compliance costs.
The book has eight chapters, each written by a different specialist. But first we are welcomed with a clear introduction in which the editor sets the stage with definitions, explanations and summaries . . . including a fine, four-page description of the flat tax. ("Most flat tax systems . . . would have a rate somewhere between 15 percent and 20 percent.")
Senator Bill Bradley (D-N.J.) presents an explanation of his "Fair Tax," embodied in the Bradley-Gephardt plan, one that would widen the income tax base by treating capital gains as ordinary income. (This will bring howls from Wall Street.)
Arguing that "a flat tax for everyone would be a bonanza for the wealthiest taxpayers," Senator Bradley says his Fair Tax -- a simple 14 percent on taxable income -- "is higher than the lowest 11 percent rate today (but) low income taxpayers are still better off . . ."
Congressman Jack Kemp (R-N.Y.) weighs in with his "Fair and Simple Tax" (FAST), similar in many respects to the Bradley idea. Urging a comprehensive income tax with only one rate, this bill would cut the top marginal rate in half, dropping it to 25 percent from 50 percent. An eight-point summary clears up all the details. The book then walks us through other plans.
One of the book's best features is its clear introduction by Pechman, in which the editor summarizes most of the plans. If "short form" reading is for you, this introduction will save all but the most studious person the trouble of wading through it all.
And now back to Form 1040 for April 15.