Question

The Paperwork Reduction Acts notwithstanding, the amount of paperwork that federal agencies thrust on the American public keeps growing. Federal income tax forms are one of the most time-consuming and intrusive paperwork requirements that most Americans fill out. Can you recommend ways of simplifying the form you use? If so, what are they? Do they involve rewriting tax law?

Answer 1

The paper reduction act was enacted to minimize the paper work burden for individuals, small businesses, educational & nonprofit institutes & in general people, from the collection of information from federal government. The act imposes procedural requirements on agencies who want to collect information from public. It states that every federal agency must take approval from Office of Management and Budget (OMB) before collecting information from 10 or more people. Federal income tax forms are one of the most time-consuming and intrusive paperwork requirements that most Americans fill out. The IRS currently uses the ADL models to estimate the time required to complete forms and schedules. These estimates are published with the tax forms as part of the “Paperwork Reduction Act.

The forms we use can be simplified by simplifying taxes & their presentation on paper in the following manner.

1) Eliminate or align income limits: The inconstancies in the tax codes complicate tax returns. It requires several worksheets to calculate taxable income, deductions & credits. Therefore by retaining income limits on tax preferences but setting those at uniform levels for related activities will reduce complexity.

2) Simplifying or eliminating the taxation of social security benefits: Currently determining the taxable amount of a recipient’s Social Security benefits requires completing 19-line worksheet that draws on information from other parts of the tax return. Therefore we need to make a fixed fraction of benefits taxable for all which will reduce the form size.

3) Simplifying taxation of capital gains & dividends: Currently IRS imposes different types of tax rates depending on various criteria. It requires four different worksheets & one with 45 lines which make it one of the lengthy piece of the form. Therefor by allowing a percentage exclusion for qualified dividends and long-term gains and applying regular tax rates to the rest would sharply reduce the complexity of returns while maintaining different effective tax rates on different kinds of gains and dividends.

4) Implementing a flat rate system: Currently US taxes income on a graduated basis, with numerous targeted credits and deductions, and with withholding at source for certain types of income. This requires a large amount of information to be gathered. By having a flat rate system with universal deductions, credits or exemptions may decrease the amount of information needed & reducing complexity.