###  Cover Page 

A Proposal for Reconstruction and Reform of the Federal Income Tax for
Individuals

Submitted by: Carl Hayes Walker

Category of Submitters: Individual

Contact Information:

Address: 14017 Rolling Hills Lane, Dallas, TX 75240-3807

Home Phone: (972) 783-6794

E-mail Addresses: <hwalker9@netscape.net>;
[hwalker@simpletax.info](mailto:Hwalker@simpletax.info)

Date of Submission: April 28, 2005

Carl Hayes Walker

##  Description of Proposal (Summary)

-   Tax base: Income

-   Exemptions, deductions, credits and exclusions:

a.  Elimination of exemptions and filing statuses

> b\. Large increase in the standard deduction

c.  Conversion of certain "itemized deductions" to adjustments to income

d.  Phase-out of the Earned Income Credit (a welfare-like entitlement)

e.  Large increases in educational credits and deductions for low-income
    people

f.  Exclusion of first \$100 of taxable interest and first \$1,000 of
    self-employment

> income if the taxpayer files by April 15 and owes nothing after
> filing.

-   Tax rates: The "single" tax rate schedule for 2004 would apply to
    all taxpayers.

-   Distribution of the tax burden (including provisions for relief for
    low-income individuals):

a.  The individual standard deduction would be set at \$10,000
    initially, relieving many

> low-income individuals from having a filing requirement.

b.  Generous education credits would replace EIC. Higher education is
    the best form of

> relief for low-income individuals (to move them to the middle class or
> beyond).

c.  The alternative minimum tax would be abolished.

-   Treatment of charitable giving and home ownership: Donations to
    genuine charities

(defined later) and home mortgage interest and property taxes would be
deductible as

adjustments to income---as would certain unreimbursed medical expenses
(with limits).

-   Collection methods: Withholding of tax by employers; estimated taxes
    for self-employed

-   Treatment of businesses: This proposal does not address
    business/corporate taxes.

# Carl Hayes Walker Page One 

# 

# A Proposal for Reconstruction and Reform of the Federal Income Tax for Individuals 

Dear Taxpayers and Advisory Panel members,

Since September 10, 2001, I have been a seasonal Customer Service
Representative for the

Internal Revenue Service. In that capacity I have dealt with thousands
of taxpayers struggling

with the complexity of our tax laws and attempting to utilize those laws
to their best advantage

or to their least disadvantage. The phone calls I receive deal with
endless variations of a few

recurring themes. It seems clear to me that the tax laws that apply to
individuals can be greatly

simplified by a few fundamental changes.

These changes will be seen as "too extreme" by the various
constituencies that might be said to

"have their fingers in the pie." I happen to be a member of one of those
constituencies. These

simplifications would render many IRS Customer Service positions
unnecessary, so my job

might be lost due to downsizing. (But those displaced could be put to
work auditing returns.)

Thousands of people who now make their living by preparing tax returns
would soon have

to find other employment. (Again, potential IRS auditors.) Many
taxpayers---and many *non-*

*payers*---would find some of their precious deductions and credits
reduced or eliminated. Any

genuine simplification of the tax code will have these consequences. In
fact, if these things don't

happen, you'll know there has not been enough simplification.

Here are some other results that these changes could bring: Child
custody cases would be

somewhat less about money, so perhaps they could be somewhat more about
what's best for the

child. Many taxpayers would receive extra incentives to further their
education, to become

Carl Hayes Walker Page Two

homeowners, and to set aside money for their retirement. Teenage
pregnancy would almost

certainly become less common. More people might choose to get married,
and more children

might be raised in two-parent homes. And perhaps ninety percent of
individual taxpayers would

be able to prepare their own tax returns.

My goal is not just a simple Internal Revenue Code, but one that will
actively contribute to the

building of a progressive \"ownership society\" in the best sense of
that term.

### My Recommendations

I\'m proposing seven principles for the new tax code for individual
taxpayers. I\'ll list them below

and then expound upon each one. Two minor exclusion ideas will be
appended to #3 and #6.

1.  Elimination of filing statuses

2.  Elimination of exemptions

3.  Large increase in the standard deduction

4.  Conversion of certain "itemized deductions" to normal adjustments

5.  Phase-out of Earned Income Credit (a welfare-like entitlement)

6.  Enforcement of federal tax withholding by employers

7.  Elimination of the Alternative Minimum Tax

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1.  [ELIMINATION OF FILING STATUSES]{.underline} The concept of
    different "filing statuses" would

be done away with. This would eliminate the problem of taxpayers
claiming statuses to

which they are not ethically entitled but which provide unwarranted tax
benefits. It will

also prevent married persons from inflicting their tax problems upon
their spouses, so

Carl Hayes Walker Page Three

"injured spouse" and "innocent spouse" claims (and the resultant audits)
will be rendered

unnecessary. Each taxpaying individual would be responsible only for his
or her own taxes.

The 2004 tax rate schedule used for single taxpayers would apply to all.

Filing statuses were based upon a standard that is no longer a
meaningful standard: marital

status. Whether we like it or not---and, for the record, I think it's
deplorable---marital status

has ceased to be an issue in many people's lives. Large numbers of
Americans, though

professing undiminished religiosity, ignore or shun the sacrament of
marriage. Tax policy has

had a hand in this process for decades, so it is important to consider
this matter in detail.

Filing statuses were originally "single" and "married," and the
distinction between the two

was plain and simple. As more and more marriages began to break up and
large numbers of

single persons began to have children, the "head of household" status
was devised to give a

tax break to single parents who were working, managing a household, and
raising kids on

their own. "Married filing separately," a status with several
restrictions and only one clear

advantage, was created for married individuals who had reasons (such as
separation) for not

filing with their spouses but did not meet the criteria for "head of
household."

Claiming "head of household" soon caught on as a more profitable
alternative to filing single

or married filing separately. People who claim to meet the tax law
definition of "head of

household" now frequently have in the home one or more other adults who
have more

income, and pay more of the bills, than the one claiming "head of
household." Sometimes

Carl Hayes Walker Page Four

most of the money is being brought into the house by the "qualifying
person," sometimes by

the live-in lover of that person, sometimes by the live-in lover of the
"head of household."

I've had calls from married couples who filed separate returns---one
filing single and the

other claiming head of household---so they could take standard
deductions totaling more than

that accorded a couple filing a joint return. I've had calls from honest
but ignorant married

folks who did not know that they could file jointly if only one spouse
had income. (The one

with income filed "head of household," thereby taking a smaller standard
deduction than was

available with a joint return.) And the "multiple adult" scenario
described above is what I've

encountered in many dozens of conversations with claimants of head of
household. One of

those ladies "didn't work much" during the year but insisted she was
paying all the rent and

the utilities with her own money---which she got from her grown son (her
"qualifying

person") and her boyfriend, both of whom were paying rent to her. That
is not the "hard-

working single parent" scenario for which "head of household" was
created.

One of the "special rules" for "married filing separately" is that you
cannot take the earned

income credit. Other credits are disallowed or reduced. (See IRS
Publication 17, pages 24

and 25, for the complete list.) I suspect that tens of thousands of
false claims of "head of

household" are due to the taxpayers' determination to claim these
credits, especially the EIC.

One lady told me that a woman of her socioeconomic level \"would have to
be crazy to get

married\" because if a couple files jointly, their combined income is
likely to exceed the limits

for claiming EIC, and if they file married filing separately, EIC is
forbidden to both.

Carl Hayes Walker Page Five

\"Head of household,\" as indicated by its standard deduction (larger
than single but less than

married filing jointly) was once an in-between status that was
understood as having been

created by divorce or separation, or by the death of a spouse, or,
occasionally, by the birth of

a child out of wedlock. It was understood as a status that might prove
temporary; the single

mother might marry, and the divorced or widowed parent might remarry. In
recent decades,

however, being \"head of household\" has become an entrenched lifestyle
for millions who

have no qualms about bearing children at the expense of others. That
lifestyle\'s enabling

partner, EIC, has come to be treasured\--or taken for granted---as
virtually a God-given right.

2.  [ELIMINATION OF EXEMPTIONS]{.underline} No tax benefit will be
    gained from bringing a child into

the world. Taxpayers who choose to have children will quickly realize
the economic

advantages of maintaining a two-parent home. Divorced and separated
parents will have one

less thing to argue about concerning their children: who gets to claim
the exemptions.

The planned increase in the standard deduction (see below) will more
than make up for the

loss of the personal exemption. The tax-reducing benefit of personal and
dependency

exemptions will be replaced by more socially progressive adjustments to
income.

3.  [LARGE INCREASE IN STANDARD DEDUCTION]{.underline} The standard
    deduction for each

individual taxpayer will be set at \$10,000.00 to start with. Upward
adjustments will be made

periodically. Compare this with the tax year 2004 total of \$7,950.00
(\$4,850.00 standard

deduction + \$3,100.00 personal exemption) that a single taxpayer may
subtract from his or

her Adjusted Gross Income (AGI) to arrive at the taxable income. A
taxpayer with no other

Carl Hayes Walker Page Six

deductions, and with no credits, would pay income tax only on the amount
of gross income

over \$10K. Most filers *would* qualify for one or more additional
deductions and some credits,

so they might have no tax liability on incomes of \$12K to \$15K.

To encourage the habit of saving, and as an incentive to file returns
and pay taxes by April 15,

I recommend allowing filers to exclude the first \$100 of taxable
interest from their AGI. This

exclusion would apply only to complete and accurate returns filed by
April 15 with no unpaid

liability after that date.

4.  [CONVERSION OF CERTAIN "ITEMIZED" DEDUCTIONS TO
    ADJUSTMENTS]{.underline}

Itemizing would become obsolete. Deductions for mortgage interest,
property taxes, and

unreimbursed medical expenses (with certain limitations) would be
allowed as normal

adjustments to income. This should encourage home ownership and
responsible attention

to health. Verification of these expenses would be required at the time
of filing. Methods can

be developed to make this verification feasible with mailed and
electronically filed returns.

For instance, the Form 1098, used for reporting mortgage interest paid,
might become a multi-

copy document more closely resembling a W-2. A copy of it would be
required with a mailed

return, and it could have code numbers that could be entered into an
e-filed return.

The next two paragraphs reflect my personal ethics. I would not expect
much agreement

from the general populace or from Congress.

Contributions to genuine charities---correctly defined as organizations
that directly benefit the

needy with tangible and constructive assistance, such as food, clothing,
health care, job

Carl Hayes Walker Page Seven

training, and special education---could also be deducted. The
organizations receiving the

donations must adhere to strict ethical standards and must be held
accountable to the public

and to the federal government with regard to their effectiveness as well
as their finances.

Anyone choosing to contribute to his or her favorite church, synagogue,
mosque, museum,

ballet company, scout troop, or other special-interest group would be
free to do so, but they

should not expect to receive a tax write-off for it. Donations to such
organizations might be

commendable uses of one\'s private funds, but they should not be
considered valid reasons to

reduce one\'s tax liability. These special-interest organizations often
represent ideologies and

agendas that are at odds with the values and concerns of many other
American taxpayers.

5.  [PHASEOUT OF EARNED INCOME CREDIT]{.underline} Although some types
    of credits (such as the

credits for child care expenses and adoption expenses) would be
unaffected, and others (for

educational purposes and retirement savings) would be greatly increased,
the Earned Income

Credit would be phased out over a period of three years. (Each year, one
column of the EIC

Table would be dropped. I'd suggest dropping the almost useless "no
child" column first,

then the "two children," then the "one child" column. The dollar amounts
should be scaled

back, too.) This credit is primarily a subsidy for having children.
Without a "qualifying

child," you must be at least twenty-five years old in order to claim
EIC, and the most you

could get (for 2004) is \$390.00. But there's no minimum age for
claiming the credit with one

or more qualifying children. A teenage girl without a child cannot get
the EIC regardless how

much earned income she makes, but if she has a baby the tax code rewards
her with up to

\$2,604 (for 2004). A second baby can boost her EIC to a maximum of
\$4,300 for 2004.

##  Carl Hayes Walker Page Eight

EIC is touted as assistance to working people with children. At first
glance it looks like a

liberal program to put more money into the hands of poor people. But if
a committee of anti-

progressive legislators had schemed to devise a program that would
encourage young low-

income women to have children early, to avoid marriage, and to curtail
their education, they

could hardly have created anything surer to deliver those results than
the EIC. This "credit"

pays poor young women to bear children they cannot afford to raise
*without* the credit. Those

children, in turn, tend to become undereducated, underemployed,
over-incarcerated, overly

dependent on government aid, and under-supportive of their own children.
This cycle must

be stopped, or the "ownership society" will have a large subclass that
can never own much.

Consider this quote, which appears in an article titled *Association of
Early Childbearing and*

*Low Cognitive Ability,* authored by Darlene L. Shearer and five others,
and appearing on the

web site of The Alan Guttmacher Institute:

\"Teenage mothers are more likely than older mothers to experience low
educational

and occupational achievement; to live in poverty; and to have children
with behavioral

problems, academic difficulties and developmental delays, including mild
mental

retardation. In addition, many young Americans have a second pregnancy
while still

in their teens, exacerbating the problems associated with early
childbearing.\"

Among the very demographic groups that are in greatest need of higher
education and higher-

paying jobs, the EIC actually offers a tax incentive for early
childbearing, which is one of the

strongest disincentives to continued education for women. If very
generous incentives were

Carl Hayes Walker Page Nine

provided for the continuation of education instead of for childbearing,
many young women

## 

##  would probably postpone motherhood for at least a few years in favor of staying in school and

## 

##  obtaining good jobs. 

6.  [ENFORCEMENT OF FEDERAL TAX WITHHOLDING]{.underline} In order to
    help more individual

taxpayers avoid owing the IRS after they file, employers must be
required to withhold taxes

from the pay of anyone who meets the definition of an "employee" stated
in IRS

Publication15A, pages 3\--8. Withholding rates would be correlated with
pay rates only, not

with exemptions. Some flexibility in withholding rates would be allowed
to permit an

employee to maximize take-home pay, but at least eighty percent of the
expected tax

liability would have to be collected through withheld tax. Self-employed
persons and

independent contractors would be strongly urged to meet their estimated
tax requirements.

An increase in the estimated tax penalty might be advisable to encourage
compliance.

The exclusion of the first \$1,000 of self-employment income (mentioned
on the "proposal

description" page) would serve as an extra incentive to pay estimated
taxes. It would also

serve to console those workers who are unfairly treated as
"non-employees" by companies

determined to avoid paying employment taxes. This exclusion would only
apply to complete

and accurate returns filed by April 15 with no unpaid liability after
that date.

7.  [ELIMINATION OF THE ALTERNATIVE MINIMUM TAX]{.underline} Anyone who
    has perused

Form 6251 should have realized that a better way must be found to ensure
that the wealthy

pay their fair share of income tax. And it must have occurred to the
diabolical committee

that created Form 6251 that the various items that the form calls into
question---the tax-

Carl Hayes Walker Page Ten

shelter farm activities, accelerated depreciation, "intangible" costs,
etc.---might not be fully

justifiable to begin with. I would urge those who get to do the work of
dismantling the AMT

to consider getting rid of any deduction, credit, exclusion or special
tactic that seems to exist

primarily to shelter someone's income from taxation. There might not be
a revenue-neutral

way to abolish the AMT, but I hope the Panel receives a plan that comes
close to that ideal.

#######  Parting thoughts---on ignorance, independence, and the "ownership society." 

The people who call me each day---to discuss filing requirements,
dependency issues, and

debts they owe to the IRS---are nearly all appallingly ignorant about
income tax matters.

Most say that they rely on tax preparers because they can't understand
taxes and don't have

the confidence to learn. The tax preparation companies must think that's
a healthy situation,

but it is a portent of trouble in a nation struggling toward an
ownership society.

Americans need to own a tax code that they can understand and use, so
that they can be freed

from the habit of going to H & R Block or some other paid preparer every
spring. That tax

code does not have to bring them a load of credit-and-deduction goodies,
nor should it

confront them with page after page of worksheets and schedules. It
should help them achieve

important goals---college for their kids, retirement for themselves. It
should tax their income

progressively, but not excessively. But perhaps most importantly, it
should enable a taxpayer

to sit at the dining table for an hour or so with a two-page form and a
fifteen-page instruction

booklet and then proclaim, "There, it's finished. I've done my tax
return."