A lot of tax changes will be happening in 2013. There are some changes we would like to see, but probably won’t. Bill Bischoff wrote an article in SmartMoney that outlined the five top changes that he’d like to see. He offered some insightful suggestions. Here’s a summary.
1) Stop Double-Taxing Social Security Benefits
Federal income tax is currently taken out of employees’ paychecks before Social Security tax is taken out, so employees are paying taxes on Social Security tax. When they start receiving Social Security benefits, up to 85% of that money can be taxed again.
2) Eliminate ‘Refundable’ Tax Credits
Those who qualify for refundable tax credits can use the credits not only to offset their tax bill, but can also collect any leftover refundable credits in cash. This system results in the government having to write people checks.
3) Get Rid of Phase-Out Rules
Several tax breaks have been created (mostly to further the careers of politicians) that aren’t allowed for people whose income is at a certain level. The child tax credit, higher-education tax credits, and others fall into this category. People vote for politicians thinking they will receive the benefits of the politicians’ rhetoric, but the phase-out rules disqualify them.
4) Dump the Alternative Minimum Tax (AMT)
The AMT began with good intentions, to prevent very-high-income-level people from taking unfair advantage of multiple tax breaks. Now, however, the AMT has evolved into a tax that mainly penalizes middle-income people that have several children and pay a lot of state and local taxes. Congress has been tweaking the AMT rules every year to prevent millions more from getting hit with the tax, but why not just repeal it or revamp it completely?
5) Let Employees Deduct Health Insurance Premiums
Employees who have to pay for their own health insurance don’t get any tax write-offs unless their company provides a cafeteria benefit plan. Many small companies don’t, so employees are forced to pay the premiums with after-tax dollars. At the same time, employees with better benefit packages get tax-free health coverage, and self-employed folks are allowed to write off their health insurance premiums.
Bischoff sums up the article by urging us to start demanding an Internal Revenue Code that collects taxes in an efficient and transparent manner. Read the article here.
