Question

What are two common proposals that would simplify the U.S. tax-filing system?

Answer 1

Increase the standard deduction Houses are allowed to claim a standard deduction of $6,350 for couples and $12,700 for married joint filers when they file their individual income tax returns. Houses, however, may choose to ignore the standard deduction and instead subtract a wide range of household expenses such as mortgage interest payments and gambling losses known as itemized deductions. Most households choose the standard deduction, but they choose to itemize about 30 percent. The decision-making process of identifying deductions is relatively complex. Households must track and record their relevant expenses throughout the year, consult IRS rules to determine which expenses can be deducted, and determine if their potential itemized deductions exceed the standard amount of deductions.

Eliminate itemized deductions One way to increasing the cost of itemized deductions is simply to exclude some of them from the tax code. Taxpayers are eligible to claim over a dozen itemized deductions, each with its own rules and regulations. While many of these deductions are associated with specific policy goals (such as providing state governments with fiscal assistance or promoting home ownership), they are often poor vehicles to achieve these goals.The more deductions policymakers eliminate, the harder it would be for U.S. families to file taxes. Not only would taxpayers have less tax requirements to comply with, but the simpler option would increase the chance that households would choose to take the standard deduction by reducing the number of itemized deductions.

Reform Family tax laws For households with children and dependents, individual income tax includes several provisions that reduce taxes. These include: child tax credit, personal exemption, income tax credit earned, child and dependent care credit, and head-of-household status filing. This makes the tax filing process more difficult for families with children by handling each of these various clauses.For example, many of these provisions use inconsistent "child" definitions. Child tax credit can only be claimed by households with children under the age of 17, whereas personal exemption applies to children under the age of 19 (or students under 24). These different definitions are likely to cause taxpayers to be confused and may result in filing errors. However, several of these laws are difficult to quantify for households and are subject to a range of detailed rules on qualification.

Eliminating the Alternative Minimum Tax A is the removal of the Alternative Minimum Tax, a particularly complicated aspect of the individual income tax code. The AMT basically functions as a parallel tax system with a separate set of rules and tax rates to the normal individual tax code. As a result, many taxpayers have to calculate their tax liability twice: once in the regular tax system and once in the AMT. Many recent tax initiatives, including the House Republican tax plan and the White House proposal released in April, have called for the AMT to be repealed outright. The abolition of the AMT will make the tax process less difficult for millions of households by stopping them from measuring their tax liability under two sets of rules.