The voices of Tax Policy Center's researchers and staff
Paul Ryan and the House Republicans rolled out a new tax plan last week that promises to lower rates, eliminate tax preferences, and simplify the federal tax system. One attractive promise: “Simple, Fair ‘Postcard’ Tax Filing” that would cut your income tax return down to just 14 lines.
Like every promise of a one-page tax return, this one is misleading at best. Sure, you can create a simple return, but only by moving many calculations to separate forms or worksheets. Ryan and the House Republicans deserve credit for their proposal to simplify the tax code, but they aren’t making it as simple as their one-page return makes it seem.
To see why, let’s walk through their return. Here it is:
A Better Way—The 2016 GOP Tax Plan
Line 1: Wage and compensation income. Many of us could just copy a number from one W-2. But if you got W-2s from multiple employers, you’ll need a worksheet to add them up.
Line 2: Add ½ of investment income. Same story: If all of your investments are with one broker, just pull the number from one 1099. But if you have investment income from multiple sources, say savings or brokerage accounts, you’ll need another worksheet.
Line 3 Subtract contributions to specified savings plans: Multiple savings plans mean more calculations.
Lines 4-6: Subtract standard deduction OR Subtract your mortgage interest and charitable contribution deductions. Choosing which way to go requires more calculations.
Lines 7-8: Taxable income and Preliminary tax. At last, something you can do on a simple form: Just add lines 1 and 2 and subtract line 4 or lines 5 and 6. Then look up your tax before credits.
Line 9: Subtract child credit. Sounds easy—you get $1,500 for each qualifying child. But what does “qualifying” mean? It isn’t easy—just ask divorced parents who have joint custody. Then you’ll need to sort out the refundable portion of the credit versus the non-refundable portion. And you’ll need to figure out how the credit phases out as your income rises. More worksheets.
Line 10: Subtract earned income credit. The EITC already requires families to fill out two multi-page worksheets. Given concerns about fraud and errors involving the credit, it is hard to see that paperwork shrinking.
Line 11: Subtract higher education credit. The Ryan plan doesn’t say how the new credit would work but there’d surely be rules to limit it.
Lines 12-14: Total tax, Subtract taxes withheld, and Refund due/taxes owed. We’re almost there—subtract the credits to get your total tax, compare that with what you’ve already paid through withholding and estimated payments (whoops, the form doesn’t mention those), and you’re finished.
But the postcard leaves out a lot of taxable income. Where are Social Security benefits? Distributions from your pension, IRAs, and 401k’s? Unemployment compensation? Unless the plan makes all of that tax-free, you’ll need a place to report it.
We’re up to at least 10 worksheets, and probably more, hardly the promised postcard return. Today’s 1040 could fit on a postcard—IF all of the hard parts move off the main form. But that wouldn’t reduce the work taxpayers have to do. Ryan should take a bow for proposing a simpler tax code, but his bumper-sticker promise of postcard filing is misleading hype.
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Tax payers search through tax forms at the Illinois Department of Revenue in Springfield, Ill., Thursday, April 15, 2010. April 15 is the IRS filing deadline for 2009 taxes. (AP Photo/Seth Perlman)