Shine a Light on What Taxes You Pay
Every year, politicians, economists, tax practitioners and others talk about making changes to our federal and state tax systems. Some of the proposed changes are more fundamental – the adoption of a consumption tax, for example. Other proposals, on the other hand, call for varying degrees of modification to the existing system, such as adding or expanding tax incentives to encourage savings, modernizing the international tax rules, or making procedural changes to improve compliance.
In a presidential election year, and at a time when our country faces unprecedented levels of debt and extraordinary amounts of governmental-operating deficits, taxes will continue to be one of the most pressing issues for public discourse. Have you heard any of the candidates mention the “T” word lately? We all know, however, that talking about taxes in this environment takes a lot of political courage.
As a long-time advocate for sound tax policy and effective tax administration, the AICPA has encouraged a principled framework for analyzing tax law changes and one of those principles is transparency - citizens should know that a tax exists and how and when it is imposed upon them and others. Unfortunately though, many people are in the dark when it comes to money, taxes and finances so we’ve decided to “turn on the lights.” How did we do this? By linking the federal tax rules with the diversity of our country’s state and local tax laws, to create the Total Tax InsightsTM calculator - a first-of-a-kind tool to help the public understand the types of taxes they pay and their estimated amounts–no matter where in the country they live--and to make informed financial decisions.
The changes I mentioned above often focus on tax simplification and transparency is an important partner with tax simplification. Transparency in tax law should be measured by how easily taxpayers can determine how any particular tax provision--and the tax statute as a whole --affects their tax burden. The more complex a tax system is, the less transparent it tends to be, leading to confusion, frustration and the perception that taxes are unfairly imposed.
The tax system is a primary link between citizens and their government, with a significant influence on citizen attitudes toward government. In 1972, Americans rated the income tax as the fairest tax; but by 1979, most people rated it as the most unfair tax. This downward trend continues and the ultimate impact on voluntary compliance is dramatic. But taxes are needed for predictable and reliable revenue streams for government operations so maybe a bit more transparency will help to balance things out.
So take the Total Tax Insights “test” and turn the lights on. Did you realize how many different types of taxes you were actually paying - the calculator covers over 20 of the most common taxes levied - or how much? Did you consider that financial planning might help ease the pain of knowing? Then again, you might like what you see!
Edward S. Karl, CPA, Vice President of Taxation, American Institute of CPAs.