Therehas been a lot of talk lately about “tax expenditures” and the 47% of Americanswho either pay absolutely no federal income tax or actually make a profit byfiling a tax return (thanks to “refundable” tax credits).
Overthe years the idiots in Congress have created a mucking fess of the Tax Code bymaking it the method of delivery for various social welfare benefits and toencourage certain beneficial purchases, which has created the 47%. This is certainly not the best, nor the mostefficient, way to deliver or distribute these benefits – but it is easy. And, as we all know, the idiots in Congressare all for choosing the quickest and easiest way to do things rather thanactually having to sit down and think.
Whilethere are many “tax expenditures” that should be completely done away with,many of the social and societal benefit programs run through the Code areactually good and have merit. But theyshould be delivered and distributed separately out of the budget of theappropriate cabinet department – and not on the 1040.
AsI have posted here before, doing this is much “more better” for many reasons -
(1)It would be easier for the government to verify that the recipient of thesubsidy or hand-out actually qualified for the money, greatly reducing fraud.And tax preparers would no longer need to take on the added responsibility ofhaving to verify if a person qualified for government funds.
(2)The qualifying individual(s) would get the money at the “point of purchase”,when it is really needed, and not have to go “out of pocket” up front and waitto be reimbursed when they file their tax return.
(3)We would be able to calculate the true income tax burden of individuals. Many of the current 47% would still bereceiving government hand-outs, but it would not be tied into the income taxsystem so they would actually be paying federal income tax.
(4)We could measure the true cost of education, housing, health, welfare, etcprograms in the federal budget because the various subsidies would be properlyallocated to the appropriate departments and not be reported as a part of netincome collected via income tax.
(5)The Tax Code would be much less complicated, the cost to the public forpreparing a tax return would be reduced, and the IRS would have much less toprocess and to audit.
Item(2) is a very important one. A major problemwith using the Tax Code to distribute government benefits via tax deductionsand credits is that the benefits are provided “after-the-fact” and not at the “pointof purchase”.
Let’slook at the deductions and credits for tuition and fees. In order to claim these tax benefits thestudent, or more likely his/her parents, must spend the money for tuition andfees and then wait until they file their tax return to get the “studentfinancial aid” from the government.
Thesestudents, and parents, need the money when the tuition and fees are due. If they do not have it at the point ofpurchase they often turn to borrowing, placing themselves further in debt.
Thereis currently in place a process for providing student financial aid at thepoint of purchase. And this aid is basedon student and family income, using information from tax returns. Instead of giving those who qualify a taxdeduction or credit on their Form 1040 a year or more later, why not give thesame benefit, based on the same income formula, as part of the existing studentfinancial aid system. This way thestudent, or parents, gets the money upfront to pay for college expenses or, betteryet, the money is distributed directly to the college - and there is no needfor additional borrowing.
Inthe past there have been credits for purchasing energy-efficient products andimprovements, and some still exist. Butagain, the money is provided after-the-fact – as much as a year or more afterthe purchase. I would think moreindividuals would be encouraged to purchase these items if the money wasprovided upfront as a point of purchase discount. Again individuals who want to take advantageof the eventual tax credit may be forced to borrow money to make the qualifyingpurchase, creating more debt.
The“Cash for Clunkers” program of a few years back proves that this can be donerelatively efficiently.
And,as I have said over and over again, the Earned Income Tax Credit, refundableand otherwise, and refundable Child Tax Credit, which, if you call a spade ashovel, are really forms of welfare, would be better distributed via the Aid toFamilies with Dependent Children program – and with substantially less fraud.
Unfortunately,with BO re-elected and the members of Congress being the idiots they are, don’texpect any changes in the current system any time soon.
TTFN
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