Tax Equity and the New Revenue Act.

Abstract The Internal Revenue Code of 1954 sought to remove inequities, remove hindrances to economic growth, and clarify existing tax law, within the basic framework of existing revenue sources, taxpayer classifications, and rates. Thus there was no attempt during this revision of the laws to make any major re-distribution of the tax burden to achieve greater equity as between economic groups. Efforts to achieve greater tax equity were limited to some of the more obvious hardship situations within existing classifications involving matters of health, education, family status, retirement, and income security. Among these were provisions relating to medical deduction, sick pay, health plans, students, scholarships, fellowships, charitable contributions, surviving spouse, child care, retirement income credit, annuity exclusions, personal residences, insurance contracts and soil and water conservation. The equity rules are sound in concept and will benefit many millions of tax-payers. Some to whom they would normally apply, however, will not need them as their exemptions and the standard deductions are large enough to make their returns non-taxable. The additional rules provided to obtain more equitable treatment, of necessity, adds complications to the law, the regulations, and the tax forms. This has added to the taxpayer's problem of understanding the tax requirements and has made it more difficult for him to make certain that he pays the proper tax. Continued effort is required on the part of the internal revenue service to see that the tax returns are correct to in sure that no one pays no more nor less than he owes; on the part of accountants to further develop the habit among their clients for better records so that the tax can be accurately determined and substantiated; and, on the part of the taxpayers to familiarize themselves with the many new tax rules. This raises the question as to the advisability of easing some of the complexities for the extreme low income groups until there is a better general understanding of the rules by the lower middle, middle, and upper income groups. This would tend to narrow the problem of taxpayer education. One of several possible methods for such relief that is pointed out for discussion involved the introduction of a minimum standard deduction. The present standard deduction is, in general, 10% of the adjusted gross income. Thus a wage earner receiving only 720 a year is entitled to a standard deduction, in lieu of itemized deductions, of only 72, or 10% of 720. This small deduction too often forces him to itemize deductions involving much by way of record keeping as well as tax knowledge. A minimum standard deduction of 250 or 10% of the adjusted gross income, whichever is the greater, would cut through much of this paper work at the lower end of the scale and permit everyone to concentrate on the more important phases of taxation. Other possible methods for some relief of paper work relate to more liberalized filing requirements as an alternative to the present minimum requirements which currently cause the filing of several million non-taxable returns. Emphasis is placed upon the need for taxpayers to thoroughly understand their rights under the law or else many of the changes in the law to provide more equity will become only an idle gesture. The conclusion was expressed that the revenue service's current high school program of tax education, the accountants' help in informing the taxpayers, and continued advancement in administrative techniques will provide substantial improvement, but will never fully bridge the gap between the law's requirements and complete compliance for the mass of taxpayers.