Simplifying the Tax Code

Simplicity was one of the goals of tax reform. The recommendations of the Tax Council make excellent progress in this respect. Unfortunately, the media has not reported these significant changes.

In moving the income tax to a “flat tax,” most exemptions and deductions are removed and six tax brackets are collapsed into one flat rate. Other than simple tables for low-income families to lookup their tax credit and some minor adjustments to federal adjusted gross income for a small number of taxpayers, only a few lines would be necessary for the majority of filers. Remember Dick Armey promising you could file your income taxes on a post card?

Sales tax exemptions for business inputs get a major simplification. (There is agreement among tax experts that business inputs should not be taxed with a sales tax – only the final retail transaction should be taxed. That’s why the first name of the FairTax concept was the National Retail Sales Tax.)

Six listed exemptions specific to manufacturing and mining would be replaced with a single umbrella exemption. The umbrella exemption also replaces and makes permanent twelve pages of regulations (DOR Regulation 560-12-2-62.)

A single, comprehensive exemption for inputs to the production of agricultural products replaces twenty-two separate, outdated and overlapping exemption items from the current code. It also limits access to exemptions to agriculture businesses that achieve a certain level of revenue. (In other words, individuals who own a non-commercial farm will no longer get sales tax exemptions meant for real farmers.) The licensing process is also streamlined and simplified.

These changes are very significant and will save taxpayers money. The IRS estimates the average cost of taxpayer compliance is $0.20 for every dollar of tax paid.