Commentary, news and reflections about
this taxing life, by Vernon Jacobs, CPA.
Jacobs is the co-author of Legal Ways to Save Taxes Offshore & Onshore, of Offshore Tax Strategies, of The Controlled Foreign Corporation Tax Guide and of Risk Management for Amateur Investors. He is the Editor & Publisher of the International Wealth Protection Monitor newsletter and the free Q&A service, the Jacobs Report on International Financial Planning. He is the President of Offshore Press, Inc. and is a member of the International Tax Technical Resource Panel of the American Institute of CPAs. He has been a CPA since 1962, with a focus on taxes since 1975. .
The Prospects for Tax Reform or
attempts over the past 35 years to simplify the tax law have resulted
greater complexity. There is a fundamental conflict between simplicity
fairness. Without qualification, I can say that it is impossible to
if we insist on keeping the income tax. The only way to have both
simplicity and fairness is to replace the income tax with some kind of
consumption tax. But whether a
consumption tax does produce greater fairness may also prove to be a
contentious issue. Those who are advocates of a progressive tax system
attempts to tax the rich more than the poor (in terms of the percentage
income that is taxed) are vocal opponents of any kind of consumption
consumption tax imposes a
proportionally greater burden on the lower income members of society
unable to save a significant amount of their income. The income tax was
enacted because the excise taxes at the time (1913) were perceived as
unfair to the lower and middle income segments of the populace.
an income tax to a consumption tax would impose a greater tax burden on
who are retired or near retirement. Those who are retired generally
more than they make in income, resulting in more taxes with a
system than with an income tax system.
One of the
to significant tax reform is the insistence of the government that any
alternative tax system must be “revenue neutral”. That means it must
the same amount of tax revenue and the burden must be the same from all
significant special interest groups as it is with the current system.
those restrictions effectively eliminate any serious possibility of
Few of us
the Congress and
the President (of whatever party) continue to use the tax laws to
social policy by rewarding various kinds of behavior with tax
incentives and by
punishing other kinds of behavior with tax penalties. As the law grows
complexity and intrusiveness more and more taxpayers will come to scoff
trying to comply with the mindless minutia of the tax rules and will
their chances on getting caught at being tax evaders.
The social stigma of evading taxes will
government will try to
respond with more severe penalties and more restrictive rules. But that
lead to even more non-compliance and even less concern about being
the very well to do and those with land locked businesses in the
more taxpayers will
develop sources of income that are not subject to wage withholding.
taxpayers will move abroad and will just begin to forget about filing
returns after a few years. And eventually, enough taxpayers will openly
the tax system so that it will be impossible for the government to
suspect that the
great majority of taxpayers still fear the IRS and attempt to comply
tax laws. But as the laws continue to grow in size and complexity and
government adds more and more punitive penalties, a growing number of
will begin to scoff at our tax laws. That will mark the beginning of
the end of
our present Frankenstein’s monster of a tax system. What will replace
remains to be seen. But any attempt to simplify any kind of income tax
is doomed to failure because income is much too complex and subjective
used as a fair foundation for a tax system.
that’s the way it
seems to me.
Until then, I will do what I can to keep up with the changes in the International segment of the changing tax law and to help those taxpayers who are not yet ready to scoff at the insane complexity and ambiguity of the tax system.
by Vernon Jacobs, CPA
Co-author of Legal Ways to Save Taxes Offshore & Onshore
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Jacobs is the co-author of Legal Ways to Save Taxes Offshore & Onshore, with J. Richard Duke, JD, LLM.