Biden's Return: Exhibit A for Tax Reform
The 2010 Federal income tax returns of the Vice President and his wife demonstrate a great deal about the Bidens. More importantly, the Biden tax returns demonstrate that today, a fairly uncomplicated personal financial situation requires an eighteen page federal tax return. This is crazy.
One key to a responsible tax system is to reduce complexity for most, yet leave significant complexity for those with the resources and knowledge to invest their assets in a manner that will result in reduced taxes (tax shelters). The Bidens’ return offers the opportunity to demonstrate how fairly straight-forward and simple changes to the Internal Revenue Code and the rate tables could reduce tax preparation complexity without creating tax planning opportunities.
Issue One: The Bidens paid alternative minimum taxes solely because of their state taxes.
Solution: Eliminate the deduction for state and local taxes for non-business activities and reduce Federal income tax rates.
Resulting Wealthy Taxpayer Opportunities Created - None.
Reduction of pages in Biden tax return: 4.3.
Issue Two: The Bidens gave used clothing away and took a charitable deduction for the clothing.
Solution: Eliminate the tax deduction for charitable donations of clothing and household goods and reduce federal income tax rates. Allow other non-cash charitable deductions only if they exceed 5% of the taxpayer's adjusted taxable income.
Resulting Wealthy Taxpayer Opportunities Created - None.
Reduction of pages in Biden tax return: 1.0.
Issue Three: The Bidens had interest income of $4,014.
Solution: Eliminate the requirement for identification of the source of interest or dividend income unless the amounts in total exceed 10% of adjusted gross income. (Note that there are already matching 1099s filed with the Internal Revenue Service)
Resulting Wealthy Taxpayer Opportunities Created - None.
Reduction of pages in Biden tax return: 1.0.
Issue Four: The Bidens received $28,190 of Social Security benefits of which $23,962 was taxable.
Solution: Include all Social Security income as taxable income and reduce federal income tax rates. (Note that those that call or oppose means testing for Social Security generally ignore the current varying taxation rates of Social Security benefits depending upon other taxable income.)
Resulting Wealthy Taxpayer Opportunities Created - None.
Reduction of pages in Biden tax return: 1.0.
Issue Five: The Bidens had reduced personal exemptions for their alternative minimum tax calculation because of the size of their adjusted gross income.
Solution: Change the personal exemption to a credit and reduce federal income tax rates.
Resulting Wealthy Taxpayer Opportunities Created - None.
Reduction of pages in Biden tax return: 1.0.
Issue Six: The Bidens had cash contributions of $4,400.
Solution: Eliminate the charitable deduction unless over five percent of adjusted gross income and reduce federal income tax rates.
Resulting Wealthy Taxpayer Opportunities Created - None.
Reduction of pages in Biden tax return: 1.3.
Issue Seven: This isn't in the Bidens’ tax return, but is such a simple and necessary change, I include it here. Many years ago, the special rates for capital gains were reflected as only a percentage of the income being reported on the tax return rather than a specific rate. Returning to that methodology would also reduce the number of pages and the mathematical complexity of the tax return for millions of taxpayers without any significant impact on tax payments by taxpayers or tax receipts by the government.
Resulting Wealthy Taxpayer Opportunities Created - None.
The revised Biden 2010 federal income tax return is only seven pages and includes information for a rental property and two pages for household help taxes paid. None of these three pages would be necessary or included in most tax returns. (Note they had an additional blank form in their returns and one piece of information could easily be added to another page.) So, without the household help and the rental property, the revised tax return would be four pages and there would not be a dollar of opportunity created for the most creative tax accountant.
Of course, now the tax rate tables would need changing. The original Biden tax return calculated an $86,047 tax on taxable income of $304,840. The revised Biden tax return would report taxable income of $353,387 and, to be appropriate as tax simplification as opposed to tax increases, the rate tables would have to be reduced to achieve the same $86,047 in Federal income taxes. That change would take about two seconds to accomplish and the goal of reducing the complexity of filing would in great part be achieved without creating opportunities for tax accountants to creatively reduce their client's taxes.