the Income Tax: Transparency and Simplicity
2005 - The federal income tax has always been an area of
public policy where the CPA profession can make a valuable
contribution. Last year, during his term as NYSSCPA president,
John Kearney appointed David A. Lifson to head a Committee
on Practical Reform of the Tax System to discuss federal
tax policy from a “big picture” perspective
and to make recommendations to radically change the tax
committee’s proposal, the Simple Exact Transparent
(SET) tax, is a radical solution to our current tax system’s
increasing dysfunctionality. The SET tax reduces the current
overly complex tax calculations to a simple formula that
most taxpayers will understand. It applies a fair and universal
tax rate, and allows everyone to know exactly what taxes
the government is taking to support identifiable programs.
The single SET tax rate would apply to all incomes over
a generous minimum threshold, reduced by simplified exclusions
at an economically appropriate, socially acceptable rate.
The current proliferation of credits and deductions, caps
and phaseouts, and conflicting categories of income would
be unnecessary and therefore eliminated.
SET tax concept is much simpler than the current income
tax. Unlike most flat tax proposals, which allow no deductions
or exclusions, the SET tax would be more realistic and politically
important element of the SET proposal is that everyone must
file a return, even if they owe no tax, so they are acquainted
with the tax-filing system. Exempting nonpayers from filing
returns creates many problems, possibly including the fostering
of tax-evasive behavior and an underground economy.
SET tax system would enable policymakers to give the taxpaying
public an understandable tax package, encouraging voluntary
compliance and fostering greater assurance that all taxes
are being collected. It can also efficiently change who
bears the income tax burden without the complex, often incomprehensible
results of the current Internal Revenue Code. The goal of
the SET system is to eliminate complex issues through which
the system might unfairly and unintentionally penalize taxpayers.
An excellent example is the alternative minimum tax (AMT),
which the committee termed “The Phantom Menace.”
The AMT was enacted in 1969 to ensure that the very wealthy
were no longer able to avoid paying federal income taxes
entirely. Because the AMT is not indexed to inflation, however,
middle-income taxpayers have become increasingly subject
to it. The AMT is not easily comprehensible by the public,
either. It relies on the good faith of taxpayers to calculate
their income tax twice, based on two calculations using
two sets of rules. Taxpayers not using paid preparers might
not even be aware of the need to perform this alternate
short, the SET system would give every filer the means to
easily determine and understand what their tax obligation
is and how their taxes benefit them directly and indirectly.
This level of transparency should appeal to both conservatives,
because it shows the true cost of the tax system, and liberals,
because it shows the benefits derived from tax revenues.
Leaders and Opinion Shapers
role of CPAs as thought leaders and opinion shapers—in
addition to serving the public as advisors and as preparers
of millions of tax returns—has never been so important.
Having approved the committee’s SET tax proposal,
the NYSSCPA leadership is moving the proposal forward. I
welcome the input of every member as we move ahead.
Publisher, The CPA Journal
Executive Director, NYSSCPA