The American Dilemma and How We Can Fix It

You’ve decided that this year you are not going to wait until the eleventh hour and are going to get your ducks in a row and finish your tax return early.  So you’ve pulled out your shoe boxes full of receipts, gathered your bank statements and have all of your pertinent information at hand ready to tackle the task.  Good luck and God bless you.

One of your co-workers happened to have mentioned that she was entitled to the Earned Income tax credit.  She was ecstatic at this discovery.  So you decide to see whether you might also be eligible to participate in this bounty of government generosity.  You google those four mighty words “Earned Income Tax Credit” and are brought to the following section of the Internal Revenue Code:

26 U.S.C. § 32 : US Code – Section 32: Earned income tax credit

(a) Allowance of credit (1) In general In the case of an eligible individual, there shall be allowed as a credit against the tax imposed by this subtitle for the taxable year an amount equal to the credit percentage of so much of the taxpayer’s earned income for the taxable year as does not exceed the earned income amount. (2) Limitation The amount of the credit allowable to a taxpayer under paragraph (1) for any taxable year shall not exceed the excess (if any) of – (A) the credit percentage of the earned income amount, over (B) the phaseout percentage of so much of the adjusted gross income (or, if greater, the earned income) of the taxpayer for the taxable year as exceeds the phaseout amount. (b) Percentages and amounts For purposes of subsection (a) – (1) Percentages The credit percentage and the phaseout percentage shall be determined as follows: (A) In general In the case of taxable years beginning after 1995: In the case of an eligible The credit The individual with: percentage phaseout is: percentage is: ——————————————————————– 1 qualifying child 34 15.98 2 or more qualifying children 40 21.06 No qualifying children 7.65 7.65 ——————————————————————– (B) Transitional percentages for 1995 In the case of taxable years beginning in 1995: In the case of an eligible The credit The individual with: percentage phaseout is: percentage is: ——————————————————————– 1 qualifying child 34 15.98 2 or more qualifying children 36 20.22 No qualifying children 7.65 7.65 ——————————————————————– (C) Transitional percentages for 1994 In the case of a taxable year beginning in 1994: In the case of an eligible The credit The individual with: percentage phaseout is: percentage is: ——————————————————————– 1 qualifying child 26.3 15.98 2 or more qualifying children 30 17.68 No qualifying children 7.65 7.65 ——————————————————————– (2) Amounts (A) In general Subject to subparagraph (B), the earned income amount and the phaseout amount shall be determined as follows: In the case of an eligible The earned The individual with: income amount phaseout is: amount is: ——————————————————————– 1 qualifying child $6,330 $11,610 2 or more qualifying children $8,890 $11,610 No qualifying children $4,220 $5,280 ——————————————————————– (B) Joint returns In the case of a joint return filed by an eligible individual and such individual’s spouse, the phaseout amount determined under subparagraph (A) shall be increased by – (i) $1,000 in the case of taxable years beginning in 2002, 2003, and 2004, (ii) $2,000 in the case of taxable years beginning in 2005, 2006, and 2007, and (iii) $3,000 in the case of taxable years beginning after 2007. (3) Special rules for 2009, 2010, 2011, and 2012 In the case of any taxable year beginning in 2009, 2010, 2011, or 2012 – (A) Increased credit percentage for 3 or more qualifying children In the case of a taxpayer with 3 or more qualifying children, the credit percentage is 45 percent. (B) Reduction of marriage penalty (i) In general The dollar amount in effect under paragraph (2)(B) shall be $5,000. (ii) Inflation adjustment In the case of any taxable year beginning in 2010, the $5,000 amount in clause (i) shall be increased by an amount equal to – (I) such dollar amount, multiplied by (II) the cost of living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins determined by substituting “calendar year 2008” for “calendar year 1992” in subparagraph (B) thereof. (iii) Rounding Subparagraph (A) of subsection (j)(2) shall apply after taking into account any increase under clause (ii). (c) Definitions and special rules For purposes of this section – (1) Eligible individual (A) In general The term “eligible individual” means – (i) any individual who has a qualifying child for the taxable year, or (ii) any other individual who does not have a qualifying child for the taxable year, if – (I) such individual’s principal place of abode is in the United States for more than one-half of such taxable year, (II) such individual (or, if the individual is married, either the individual or the individual’s spouse) has attained age 25 but not attained age 65 before the close of the taxable year, and (III) such individual is not a dependent for whom a deduction is allowable under section 151 to another taxpayer for any taxable year beginning in the same calendar year as such taxable year. For purposes of the preceding sentence, marital status shall be determined under section 7703. (B) Qualifying child ineligible If an individual is the qualifying child of a taxpayer for any taxable year of such taxpayer beginning in a calendar year, such individual shall not be treated as an eligible individual for any taxable year of such individual beginning in such calendar year. (C) Exception for individual claiming benefits under section 911 The term “eligible individual” does not include any individual who claims the benefits of section 911 (relating to citizens or residents living abroad) for the taxable year. (D) Limitation on eligibility of nonresident aliens The term “eligible individual” shall not include any individual who is a nonresident alien individual for any portion of the taxable year unless such individual is treated for such taxable year as a resident of the United States for purposes of this chapter by reason of an election under subsection (g) or (h) of section 6013. (E) Identification number requirement No credit shall be allowed under this section to an eligible individual who does not include on the return of tax for the taxable year – (i) such individual’s taxpayer identification number, and (ii) if the individual is married (within the meaning of section 7703), the taxpayer identification number of such individual’s spouse. (F) Individuals who do not include TIN, etc., of any qualifying child No credit shall be allowed under this section to any eligible individual who has one or more qualifying children if no qualifying child of such individual is taken into account under subsection (b) by reason of paragraph (3)(D). (2) Earned income (A) The term “earned income” means – (i) wages, salaries, tips, and other employee compensation, but only if such amounts are includible in gross income for the taxable year, plus (ii) the amount of the taxpayer’s net earnings from self- employment for the taxable year (within the meaning of section 1402(a)), but such net earnings shall be determined with regard to the deduction allowed to the taxpayer by section 164(f). (B) For purposes of subparagraph (A) – (i) the earned income of an individual shall be computed without regard to any community property laws, (ii) no amount received as a pension or annuity shall be taken into account, (iii) no amount to which section 871(a) applies (relating to income of nonresident alien individuals not connected with United States business) shall be taken into account, (iv) no amount received for services provided by an individual while the individual is an inmate at a penal institution shall be taken into account, (v) no amount described in subparagraph (A) received for service performed in work activities as defined in paragraph (4) or (7) of section 407(d) of the Social Security Act to which the taxpayer is assigned under any State program under part A of title IV of such Act shall be taken into account, but only to the extent such amount is subsidized under such State program, and (vi) a taxpayer may elect to treat amounts excluded from gross income by reason of section 112 as earned income. (3) Qualifying child (A) In general The term “qualifying child” means a qualifying child of the taxpayer (as defined in section 152(c), determined without regard to paragraph (1)(D) thereof and section 152(e)). (B) Married individual The term “qualifying child” shall not include an individual who is married as of the close of the taxpayer’s taxable year unless the taxpayer is entitled to a deduction under section 151 for such taxable year with respect to such individual (or would be so entitled but for section 152(e)). (C) Place of abode For purposes of subparagraph (A), the requirements of section 152(c)(1)(B) shall be met only if the principal place of abode is in the United States. (D) Identification requirements (i) In general A qualifying child shall not be taken into account under subsection (b) unless the taxpayer includes the name, age, and TIN of the qualifying child on the return of tax for the taxable year. (ii) Other methods The Secretary may prescribe other methods for providing the information described in clause (i). (4) Treatment of military personnel stationed outside the United States For purposes of paragraphs (1)(A)(ii)(I) and (3)(C), the principal place of abode of a member of the Armed Forces of the United States shall be treated as in the United States during any period during which such member is stationed outside the United States while serving on extended active duty with the Armed Forces of the United States. For purposes of the preceding sentence, the term “extended active duty” means any period of active duty pursuant to a call or order to such duty for a period in excess of 90 days or for an indefinite period. (d) Married individuals In the case of an individual who is married (within the meaning of section 7703), this section shall apply only if a joint return is filed for the taxable year under section 6013. (e) Taxable year must be full taxable year Except in the case of a taxable year closed by reason of the death of the taxpayer, no credit shall be allowable under this section in the case of a taxable year covering a period of less than 12 months. (f) Amount of credit to be determined under tables (1) In general The amount of the credit allowed by this section shall be determined under tables prescribed by the Secretary. (2) Requirements for tables The tables prescribed under paragraph (1) shall reflect the provisions of subsections (a) and (b) and shall have income brackets of not greater than $50 each – (A) for earned income between $0 and the amount of earned income at which the credit is phased out under subsection (b), and (B) for adjusted gross income between the dollar amount at which the phaseout begins under subsection (b) and the amount of adjusted gross income at which the credit is phased out under subsection (b). [(g) Repealed. Pub. L. 111-226, title II, Sec. 219(a)(2), Aug. 10, 2010, 124 Stat. 2403] [(h) Repealed. Pub. L. 107-16, title III, Sec. 303(c), June 7, 2001, 115 Stat. 55] (i) Denial of credit for individuals having excessive investment income (1) In general No credit shall be allowed under subsection (a) for the taxable year if the aggregate amount of disqualified income of the taxpayer for the taxable year exceeds $2,200. (2) Disqualified income For purposes of paragraph (1), the term “disqualified income” means – (A) interest or dividends to the extent includible in gross income for the taxable year, (B) interest received or accrued during the taxable year which is exempt from tax imposed by this chapter, (C) the excess (if any) of – (i) gross income from rents or royalties not derived in the ordinary course of a trade or business, over (ii) the sum of – (I) the deductions (other than interest) which are clearly and directly allocable to such gross income, plus (II) interest deductions properly allocable to such gross income, (D) the capital gain net income (as defined in section 1222) of the taxpayer for such taxable year, and (E) the excess (if any) of – (i) the aggregate income from all passive activities for the taxable year (determined without regard to any amount included in earned income under subsection (c)(2) or described in a preceding subparagraph), over (ii) the aggregate losses from all passive activities for the taxable year (as so determined). For purposes of subparagraph (E), the term “passive activity” has the meaning given such term by section 469. (j) Inflation adjustments (1) In general In the case of any taxable year beginning after 1996, each of the dollar amounts in subsections (b)(2) and (i)(1) shall be increased by an amount equal to – (A) such dollar amount, multiplied by (B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined – (i) in the case of amounts in subsections (b)(2)(A) and (i)(1), by substituting “calendar year 1995” for “calendar year 1992” in subparagraph (B) thereof, and (ii) in the case of the $3,000 amount in subsection (b)(2)(B)(iii), by substituting “calendar year 2007” for “calendar year 1992” in subparagraph (B) of such section 1. (2) Rounding (A) In general If any dollar amount in subsection (b)(2)(A) (after being increased under subparagraph (B) thereof), after being increased under paragraph (1), is not a multiple of $10, such dollar amount shall be rounded to the nearest multiple of $10. (B) Disqualified income threshold amount If the dollar amount in subsection (i)(1), after being increased under paragraph (1), is not a multiple of $50, such amount shall be rounded to the next lowest multiple of $50. (k) Restrictions on taxpayers who improperly claimed credit in prior year (1) Taxpayers making prior fraudulent or reckless claims (A) In general No credit shall be allowed under this section for any taxable year in the disallowance period. (B) Disallowance period For purposes of paragraph (1), the disallowance period is – (i) the period of 10 taxable years after the most recent taxable year for which there was a final determination that the taxpayer’s claim of credit under this section was due to fraud, and (ii) the period of 2 taxable years after the most recent taxable year for which there was a final determination that the taxpayer’s claim of credit under this section was due to reckless or intentional disregard of rules and regulations (but not due to fraud). (2) Taxpayers making improper prior claims In the case of a taxpayer who is denied credit under this section for any taxable year as a result of the deficiency procedures under subchapter B of chapter 63, no credit shall be allowed under this section for any subsequent taxable year unless the taxpayer provides such information as the Secretary may require to demonstrate eligibility for such credit. (l) Coordination with certain means-tested programs For purposes of – (1) the United States Housing Act of 1937, (2) title V of the Housing Act of 1949, (3) section 101 of the Housing and Urban Development Act of 1965, (4) sections 221(d)(3), 235, and 236 of the National Housing Act, and (5) the Food and Nutrition Act of 2008, any refund made to an individual (or the spouse of an individual) by reason of this section, and any payment made to such individual (or such spouse) by an employer under section 3507,(!1) shall not be treated as income (and shall not be taken into account in determining resources for the month of its receipt and the following month). (m) Identification numbers Solely for purposes of subsections (c)(1)(E) and (c)(3)(D), a taxpayer identification number means a social security number issued to an individual by the Social Security Administration (other than a social security number issued pursuant to clause (II) (or that portion of clause (III) that relates to clause (II)) of section 205(c)(2)(B)(i) of the Social Security Act)..


Pardon my French and forgive my ignorance but what the hell does that mean?  Although you’ve never taken a course in any Slavic language, you might have had as much comprehension reading the first chapter of Dostoevsky’s, “The Idiot” in the original Russian as you would reading this bit of gibberish.

I like to think of myself as slightly more intelligent than your average pet rock and I think that I have a fair amount of conversancy with the tax code but I got lost somewhere a few hundred words into this document.  How does Joe Blow who is studying to get his GED begin coping with this gobbledygook?

Well, the answer is that either he goes to a tax preparer (who probably has no greater understanding of this government gibberish but who has an automated program which has figured out how to interpret it) or he goes to one of the online tax preparation services which do the same thing as your friendly middle aged lady at H & R Block.

Unfortunately, the example I have presented persists throughout the entire tax code.  You can find the exact same sort of verbiage whether you’re looking to discover how Capital Gains should be reported or whether Social Security benefits are taxable.  Pick any other topic and you’ll get the same wordy, difficult to understand “explanation.”

In the past thirty years the IRC has grown from what was already an impressive 20,000 pages to its present 70,000 pages.  Why?  So little carve outs could be given to the favored few – whether corporately or individually.  Surely there is a better, simpler way to compute our taxes.  It has, after all, been a subject of conversation for the past twenty-five years.

Rep. David Camp (R – MI) has put forward a draft proposal that would greatly simplify the tax code and make it so that your average village idiot could actually prepare his own return, confident that he was complying with the law.  He would reduce the number of tax brackets to three; eliminate a lot of deductions and claims that it would be revenue neutral.  It is just a proposal but it’s certainly a start in the right direction – one that is long overdue.

Of course, conservatives should be aware that there is one giant caveat in tax code simplification.  It would probably allow more IRS employees time to join the witch hunt within that agency which has already targeted them.

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