Every tax season, taxpayers are all excited as they await a refund check from Uncle Sam. The large list of reliefs from the IRS has made it possible for a vast majority of American taxpayers to go without paying any Federal Income Taxes. In fact, the Tax Policy Center estimated that 47% of the taxpayers in the 2009 did not pay any income taxes – that is close to half of all the payers! The percentage only fell 2% to 45% for 2010. Of course, many of these taxpayers have to pay state and local taxes as well as other non-income Federal bills such as Social Security and Medicare. However, income taxes ideally play a major role in the collections and therefore, this huge percentage of non-payers has a significant impact on the taxes collected.
Many of these taxpayers who get subsidization for Federal income taxes are not necessarily needy. These are taxpayers who take advantage of the many breaks that have been provided in the tax code to avoid paying anything. This is not a bad thing, especially when considered from an individual perspective. However, when looking at the bigger picture, the uncollected funds put a huge dent into the taxes collected every year.
These uncollected taxes have been one of the major arguments for those advocating for reforms. The argument is that if the income taxes are reasonably collected from most taxpayers, then the taxes would be distributed in a more efficient way and the rates could consequently come down.
There are many reliefs available in the tax code. The intentions of these reliefs is great – they allow the government to create various incentives into activity and spending that is good for the overall economy. The donations relief for example enables charities to get funding; these charities do a lot of good to society. However, some proponents of reforms argue that the reliefs have become too excessive and they are subject to misuse and exploitation. Every year, the IRS pays over 100 billion for refundable credits. In fact, tax reform supporters are now arguing that many taxpayers look to the IRS as a source of income as opposed to paying funds for government operations.
However, those who are advocating for the reforms that will involve removing reliefs are met with an even bigger challenge. As much as they try to convince the lawmakers of the importance of a reform and the need to repeal the many reliefs that are a part of the tax code, the bigger challenge lies in convincing the taxpayers themselves to forfeit these reliefs. Taxpayers have become used to the government handouts in the form of refund checks and low income taxes; they may be resistant to such changes in the tax system. Since lawmakers are out to please the masses as their votes depend on this, selling the idea of tax reform may be a harder task than expected.