**Re: Request for Comments #1**

**Requested by The President\'s Advisory Panel on**

**Federal Tax Reform on February 16, 2005**

**Response by**

**Lynn J Del Negro**

**56 Hemlock Dr**

**Jim Thorpe PA 19229-9597**

**570-325-2848**

[**ljdel@yahoo.com**](mailto:ljdel@yahoo.com)

**An Individual**

**On March 10, 2005**

**Section 1: Headaches, unnecessary complexity, and burdens that
taxpayers - both individuals and businesses - face because of the
existing system.**

Compliance with the tax code is a burden shared equally with US
businesses -- a burden that can make up 20% of their cost of doing
business due to the complexity of the tax code. This results in prices
increasing by 20% for the consumer, in order to maintain profit margins.
Decreasing the cost of compliance would decrease the cost of doing
business. The present system puts US businesses at a disadvantage to
foreign competition that does not have this burden of compliance. The
same widget that costs \$1 to produce in India would cost a US business
\$1.20 to produce -- the extra \$.20 being the cost of complying with
the tax code. This puts us at a competitive disadvantage, and encourages
the export of American jobs.

Furthermore, the consumer is the true loser. Not only must they suffer
the burden of inflated price of goods due to business passing on the
cost of compliance, but they themselves also must pay to comply. The IRS
publishes estimates indicating that over 40% of taxpayers are out of
compliance with the code! And why not? The code is incomprehensible. So
much so that an entire profession, requiring a college degree and
encyclopedic knowledge (personal tax accounting) has been born.

The fact is, adding one more rule, or one more kind of tax, or one more
exception designed to reduce a less fortunate individual's liability
will not help. Additional rules will not benefit the poor/elderly
because they do not hire the accountants who know how to use them. And
additional rules can increase the cost of compliance for businesses,
which are then passed to the least fortunate anyway. Simplification is
the key! Easier compliance means cheaper compliance. The system needs to
be so simple that the least privileged and least educated among us will
reap the FULL benefit of the system -- not only the wealthy that can
afford to have it deciphered for them!

**Section 2: Aspects of the tax system that are unfair.**

The very aspects of the code designed to help the less wealthy
(seniors/poor) do not help, as they are the least likely to seek
professional help to maximize their benefits under the law. Meanwhile,
the wealthy hire extensive help, allowing them to structure their
affairs to absolutely minimize tax burden. In this way, a millionaire
who makes \$100,000 from his business and uses it to support his family
by starting another business has no tax liability, as the \$100,000
becomes a tax deductible business expense, while the lower class worker
who picks up a part time job to provide his family with an additional
\$5,000 of income is taxed AT MINIMUM 30%! 15% tax bracket, 7.5% social
security/Medicare, and 7.5% employer ss/med match.

It is unfair to look at income as a source for taxation, as it is doomed
to fail. Look at the current lineup. The wealthy are overwhelmingly the
most productive in terms of sheer dollars, yet their tax burden is the
lightest in terms of percentage of income paid in taxes. When income is
taxed, the poor are also less able to give to their church or charity. A
rich man can write off his \$10,000 donation as a tax write off, but a
poor man's \$10 in the offering plate doesn't add up to enough to allow
a tax deduction.

Once again, only when a system is simple enough that even the poorest
and least educated receive the FULL benefit from the system EVERY TIME
will our tax code be a success. And the current code's complexity by
nature benefits the intelligent, and those wealthy enough to hire
intelligence.

**Section 3: Specific examples of how the tax code distorts important
business or personal decisions.**

The tax code hurts my ability to save for a down payment for my first
house. With 30-40% of my paycheck disappearing before it hits my hands,
how can I save?

The tax code provides a disincentive to invest. If I want to invest
\$1,000 in a company, I first have to make almost \$1,500 pretax! Then,
that company spends 20% of its revenue on tax compliance, decreasing my
return on investment. Finally, when I sell my investment, I am taxed
again for any gains.

The tax code makes it difficult for my home business. I can either pay
an accountant to help me decipher business expenses and estimated tax
payments -- taking money out of my pocket, taking money away from
reinvestment in the business, or, as the case is with many small
businesses, income is simply not reported, resulting in the small
business owner being classified as a criminal.

The tax code does not reward the average American's charitable giving. I
gave \$1500 to my church this year, only to find at the end of the year
that I couldn't count it as a tax deduction, because I didn't contribute
enough to itemize.

**Section 4: Goals that the Panel should try to achieve as it evaluates
the existing tax system and recommends options for reform**.

Your mandate from the President contains a few specifics I recommend you
give the highest consideration to:

**1. Simplify Federal tax laws to reduce the costs and administrative
burdens of compliance with such laws.**

You must first realize that even if you took 50% of the confusion out of
the tax code, the poor, the elderly, and the uneducated would still not
be able to maximize their benefits. Form 1040 has over 100 pages of
instructions -- reducing it to 50 will not solve anything, other than
making it easier for the wealthy to find loopholes in a less detailed
tax code. Besides, a 50% reduction would require a complete rewrite!

Your recommendation should promote a system that allows every household
in America to get the MAXIMUM benefit under the law at ZERO cost --
every time. Credits, Deductions, IRAs, etc are too complicated for the
least educated or lowest income class to understand or take advantage of
without the help of expensive accounting advice. Your recommendation
also needs to reduce the compliance costs of businesses by at least
90% - all the compliance costs are currently being passed on to the
consumer as a cost of business, and it hits the least of us the hardest!
This is an opportunity to take a broad sweep at the tax code, and bring
it back to a simple form again.

**2. Share the burdens and benefits of the Federal tax structure in an
appropriately progressive manner while recognizing the importance of
homeownership and charity in American society**

The Social security and Medicare programs are REGRESSIVE, as they
disproportionately impact the poor. These programs need to be funded by
a more PROGRESSIVE tax, such as a National Sales Tax with Rebates up to
the poverty line. Let's face it -- the biggest difference between the
rich and the poor is how much we can buy. Taxing how much we make
continues to burden the middle and lower class, as the rich jump through
loopholes. A national sales tax has no effect on a poor family receiving
a monthly rebate -- they will be tax-free! But those that spend more
will pay the sales tax on a new Mercedes.

And what of home ownership and charity? An income tax provides a
roadblock by taking away money that could go towards these pursuits. And
all the homeowner deductions or itemization of charitable contributions?
Great, if you're already a homeowner, or employ an accountant, or
contribute enough to charity to itemize! Instead of a complicated "Pay
for your charity and down payment with after tax dollars, then maybe
you'll get a tax break if you hire the right help and fit specific
criteria" system, how about a system that doesn't tax these things to
begin with? No preemptive taxation = a system that can work for
everyone.

**3. Promote long-run economic growth and job creation, and better
encourage work effort, saving, and investment, so as to strengthen the
competitiveness of the United States in the global marketplace.**

A Preemptive Income Tax is a hindrance to savings and investment, and
decreases job creating by reducing our supply of business capital. A
National Sales tax does not tax any of the above, thereby allowing
Americans to save and invest more, and also creating more jobs with the
additional investment capital. Businesses in America presently spend 20%
of revenues on Tax Code compliance, and only a sliver of that on sales
tax collection. Taking away the burden of compliance not only decreases
the cost of goods and services for American consumers, but also makes us
more competitive in a global market by allowing us to offer goods and
services at reduced prices.

The Bottom Line: The current tax code is leveraged by the rich, and
burdens the poor. Don't even think of adding another rule or exception
or situation in the hopes it will be fixed -- simplification is the key.
And not a 10% simplification -- that won't help anyone. Take massive
decisive action, and promote a truly progressive tax like a national
sales tax with a rebate up to the poverty line. Those who are truly in
need of tax relief will finally have the burden lifted through a monthly
sales tax rebate, while those who spend large amounts on cars, trips,
and toys will pay their share. Furthermore, those in the middle who use
their money to save, invest, buy a home, or start a company -- helping
this great nation in the best way -- will no longer be taxed for their
good choices! Please don't miss this chance to fundamentally improve the
lives of every American by putting more in their pocket every paycheck
-- and letting them keep it there when they do good things with it.

I neglected to place my name in the header of each page. Attached is a
corrected reply. Thank you in advance for your time.

Lynn J Del Negro

Lynn \[ljdel@yahoo.com\]

Fri 3/11/2005 12:31 PM