Federal Personal Income Tax Problems and Solution with 2 or 1 Simple Linear Formula
A. Background:
Federal income tax systems have 7 (up to 56 during the past 100 years) tax brackets, 28 taxable income ranges, 21-page Withholding Tax Tables, 224 withholding formulas, 12-page Tax Table, unsmooth tax rate changes, 2 tax systems for companies and individuals separately, which are complex and mean more time and costs involved. The tax systems are usually changed yearly, which have caused these tables, taxable income ranges and formulas to be very complex. We need to simplify our complex tax systems. www.irs.gov/pub/irs-pdf/p15t.pdf
B. Tax Simplification Benefits:
1. Research: One-Page Simplification for Payroll, W-2 Report and Federal/State Tax Returns
One-Page Form to Combine W-2, Federal and State Tax Returns Together: Link: Table 3 (38 lines) or Link: Table 5
Postcard or Half-Page Form for Federal or State Tax Return: Link: Tables 1-3
2. Our tax simplification research has shown that 2 simple linear formulas, 1 existing formula and 1 common formula with 3 brackets to match and replace existing complex tax calculation system with 7 (up to 56 during the past 100 years) tax brackets, 28 taxable income (TI) ranges, 224 (7x4x8) formulas, 21-page Withholding Tables and 12-page Tax Table for all withholding taxes and tax returns. Its simplification is by more than 98% (1-3/224). Link: Research Paper
3. Tax Problems and One Simple Technical Solution
One-Page Form to Combine W-2, Federal and State Tax Returns Together: Link: Table 3 (38 lines) or Link: Table 5
Postcard or Half-Page Form for Federal or State Tax Return: Link: Tables 1-3
4. The tax simplification may have 15 benefits to save more than $10 billion Link: Research Paper (Table 7)
By simplifying the federal tax code, the reform would potentially save U.S. taxpayers more than $100 billion/year. Link
5. Existing Federal Individual Tax System and Simplification
_____________________________________________________________________________________________________
Existing System __ Simplification
Bracket# Status# Formula# Withholding Tables Tax Table Checking Tool Matched by Checking Tool
7 5/4 224 (7×4×8) 21 pages 12 pages No 3 brackets/formulas Yes
_____________________________________________________________________________________________________
6. Major benefits for different parties
_____________________________________________________________________________________
For Lawmakers: To convert complex factors and options into one simple technical factor and have
no more struggle about detail tax bracket #, different TI ranges and tax rates. Balance
budget is #1 factor to be considered.
Taxpayers: To let more than 50% taxpayers to not file simple tax returns and save time and costs.
Companies: To not need 21-page Withholding Tables and many formulas taxes for payrolls.
IRS: To process more simple and less complex tax returns during busy tax season,
inspect more tax returns, reduce costs and collect more potential taxes.
Value To save more than $10 billion/year (more than $3 billion/year to IRS)
____________________________________________________________________________________
C. Bill draft, bill, public hearing, related tax problem and solution with one simple linear formula:
1. Federal individual income tax simplification bill draft: Bill Draft (2 pages)
2. Bill Drafts for: Individual Social Security Benefits Without Fail (Page 3) and Corporate Tax (Page 4)
3. Public hearing: America Made: "Growing U.S. Manufacturing through the Tax Code" (March 12, 2024) Testimony
4. Child tax credit simplification with one simple slope formula: Link: Solution (No. 2)
5. Federal earned income credit simplification (9,568 EIC numbers are matched with 4 simple linear formulas): Link: Solution (No. 3)
6. IRA contribution simplification with one simple slope formula: Link: Solution (No. 5)
7. Seniors' Tax Return Simplification: Link: Senior Tax Simplification
8. Link: Federal Tax Problems and Simple Solution
D. Explanations:
1. Half or one page for Federal or state tax return or both tax returns: Payroll and withholding report is provided by companies (A, B & D). An employee just modify (C and E).
When federal and state standard deductions, exemptions, and credits are claimed, two tax returns can be one page, which can help many low and mid incomers. When people have itemized deductions, non-standard exemptions and tax credits, additional information and document(s) may be needed. Tax rate check can be used as a tool to reduce calculation mistakes.
2. Marginal and effective tax rates:
Many people often confuse with marginal and effective tax rates. Federal marginal tax rates relate to current 7 tax brackets. Effective tax rates are actual tax rates. Employers do withholding taxes with related 21-page Withholding Tables or tax formulas at www.irs.gov/pub/irs-pdf/p15t.pdf We use direct and simple effective tax rates. Filing factor F (1, 2, 4, 12, 24, 26, 52 or 365) and tax status S (1, 2 or 1.5) digital numbers are used simply.
Withholding / Income tax = (Income ± Adjustments - (Deductions + Exemptions) ÷ F) × Tax rate - Tax credits ÷ F
3. Flat, marginal or linear tax rate with cliff, rough or linear smooth tax rate change and better tax plan:
Example: Prior federal corporate tax had 8 tax brackets (15-35%) before reforming to a flat tax rate at 21% in 2017. Multiple marginal tax brackets are complex with rough tax rate changes. Flat tax rates are too simple with potential cliff problem. A flat tax rate can not cover different taxable incomes and from small to large companies reasonably. Link
A nice business tax plan is to have a relatively low bottom tax rate, which can encourage more people to start businesses. Small businesses hire many employees to meet social and economical needs. Middle and large businesses are more stable and pay relatively higher tax rates reasonably. Small businesses have potential to become middle and large businesses, which help our people and country. Two brackets and formulas for business tax is suggested such as 15%-20%-25% The 2 tax rate ranges are used as a checking tool to reduce calculation mistakes. Link: Table 2.
4. 2020 Stimulus Check: Calculation Simplification for Individuals and Families (240/480 brackets are matched and reduced to 1)
Status AGI Stimulus check Rate calculation Brackets Rate checking tool Budget analysis
Individuals $75,000-99,000 $1,200 - 0 $5 reduction for each $100 240 w/o smoothness No Add together
Families $150,000-198,000 $2,400 - 0 $5 reduction for each $100 480 w/o smoothness No (complex)
( Example: For Individual AGI=87,000, 87,000-75,000=12,000, then 12,000 ÷ 100 = 120 and 120 x 5 = 600. Final result = 1200 - 600 = 600 )
Simplification ($75,000-99,000)×S $1,200×S - 0 1-(AGI÷S-75,000)÷24,000 1 with smoothness Yes with 1 to 0 One slope formula
( S = 1 for individual or 2 for family )
(Example: Individual with AGI=87,000, Final result=1,200×S (1-(87,000÷1-75,000)÷24,000)=1,200×1(1-1,200÷24,000)=1200x1×0.5=$600)
5. Checking tool:
Existing tax system has no any checking tool to check calculations are right or wrong. A checking tool is provided to reduce calculation mistakes with this tax simplification.
6. Tax Analysis:
Existing 28 formulas are used to calculate tax revenue currently. With this simplification, only 3 formulas are needed for tax analysis, which has been simplified significantly.
Total Tax=0.1∑YTIm+∑(YTI2)m/769,230.8*S+0.1345∑YTIn+∑(YTI2)n/1,639,344.4*S+0.396∑YTIo-27,250*S* O
7. Federal Tax Simplification for Fair and Simple Tax Rate and Saving (Power Point to explain tax simplification)
8. Would you please join me to sign or support a public petition to simplify our tax systems and save our tax revenue (billions of dollars)
www.change.org/p/income-tax-simplification-to-save-our-tax-revenue-billions-of-dollars
Federal income tax systems have 7 (up to 56 during the past 100 years) tax brackets, 28 taxable income ranges, 21-page Withholding Tax Tables, 224 withholding formulas, 12-page Tax Table, unsmooth tax rate changes, 2 tax systems for companies and individuals separately, which are complex and mean more time and costs involved. The tax systems are usually changed yearly, which have caused these tables, taxable income ranges and formulas to be very complex. We need to simplify our complex tax systems. www.irs.gov/pub/irs-pdf/p15t.pdf
B. Tax Simplification Benefits:
1. Research: One-Page Simplification for Payroll, W-2 Report and Federal/State Tax Returns
One-Page Form to Combine W-2, Federal and State Tax Returns Together: Link: Table 3 (38 lines) or Link: Table 5
Postcard or Half-Page Form for Federal or State Tax Return: Link: Tables 1-3
2. Our tax simplification research has shown that 2 simple linear formulas, 1 existing formula and 1 common formula with 3 brackets to match and replace existing complex tax calculation system with 7 (up to 56 during the past 100 years) tax brackets, 28 taxable income (TI) ranges, 224 (7x4x8) formulas, 21-page Withholding Tables and 12-page Tax Table for all withholding taxes and tax returns. Its simplification is by more than 98% (1-3/224). Link: Research Paper
3. Tax Problems and One Simple Technical Solution
One-Page Form to Combine W-2, Federal and State Tax Returns Together: Link: Table 3 (38 lines) or Link: Table 5
Postcard or Half-Page Form for Federal or State Tax Return: Link: Tables 1-3
4. The tax simplification may have 15 benefits to save more than $10 billion Link: Research Paper (Table 7)
By simplifying the federal tax code, the reform would potentially save U.S. taxpayers more than $100 billion/year. Link
5. Existing Federal Individual Tax System and Simplification
_____________________________________________________________________________________________________
Existing System __ Simplification
Bracket# Status# Formula# Withholding Tables Tax Table Checking Tool Matched by Checking Tool
7 5/4 224 (7×4×8) 21 pages 12 pages No 3 brackets/formulas Yes
_____________________________________________________________________________________________________
6. Major benefits for different parties
_____________________________________________________________________________________
For Lawmakers: To convert complex factors and options into one simple technical factor and have
no more struggle about detail tax bracket #, different TI ranges and tax rates. Balance
budget is #1 factor to be considered.
Taxpayers: To let more than 50% taxpayers to not file simple tax returns and save time and costs.
Companies: To not need 21-page Withholding Tables and many formulas taxes for payrolls.
IRS: To process more simple and less complex tax returns during busy tax season,
inspect more tax returns, reduce costs and collect more potential taxes.
Value To save more than $10 billion/year (more than $3 billion/year to IRS)
____________________________________________________________________________________
C. Bill draft, bill, public hearing, related tax problem and solution with one simple linear formula:
1. Federal individual income tax simplification bill draft: Bill Draft (2 pages)
2. Bill Drafts for: Individual Social Security Benefits Without Fail (Page 3) and Corporate Tax (Page 4)
3. Public hearing: America Made: "Growing U.S. Manufacturing through the Tax Code" (March 12, 2024) Testimony
4. Child tax credit simplification with one simple slope formula: Link: Solution (No. 2)
5. Federal earned income credit simplification (9,568 EIC numbers are matched with 4 simple linear formulas): Link: Solution (No. 3)
6. IRA contribution simplification with one simple slope formula: Link: Solution (No. 5)
7. Seniors' Tax Return Simplification: Link: Senior Tax Simplification
8. Link: Federal Tax Problems and Simple Solution
D. Explanations:
1. Half or one page for Federal or state tax return or both tax returns: Payroll and withholding report is provided by companies (A, B & D). An employee just modify (C and E).
When federal and state standard deductions, exemptions, and credits are claimed, two tax returns can be one page, which can help many low and mid incomers. When people have itemized deductions, non-standard exemptions and tax credits, additional information and document(s) may be needed. Tax rate check can be used as a tool to reduce calculation mistakes.
2. Marginal and effective tax rates:
Many people often confuse with marginal and effective tax rates. Federal marginal tax rates relate to current 7 tax brackets. Effective tax rates are actual tax rates. Employers do withholding taxes with related 21-page Withholding Tables or tax formulas at www.irs.gov/pub/irs-pdf/p15t.pdf We use direct and simple effective tax rates. Filing factor F (1, 2, 4, 12, 24, 26, 52 or 365) and tax status S (1, 2 or 1.5) digital numbers are used simply.
Withholding / Income tax = (Income ± Adjustments - (Deductions + Exemptions) ÷ F) × Tax rate - Tax credits ÷ F
3. Flat, marginal or linear tax rate with cliff, rough or linear smooth tax rate change and better tax plan:
Example: Prior federal corporate tax had 8 tax brackets (15-35%) before reforming to a flat tax rate at 21% in 2017. Multiple marginal tax brackets are complex with rough tax rate changes. Flat tax rates are too simple with potential cliff problem. A flat tax rate can not cover different taxable incomes and from small to large companies reasonably. Link
A nice business tax plan is to have a relatively low bottom tax rate, which can encourage more people to start businesses. Small businesses hire many employees to meet social and economical needs. Middle and large businesses are more stable and pay relatively higher tax rates reasonably. Small businesses have potential to become middle and large businesses, which help our people and country. Two brackets and formulas for business tax is suggested such as 15%-20%-25% The 2 tax rate ranges are used as a checking tool to reduce calculation mistakes. Link: Table 2.
4. 2020 Stimulus Check: Calculation Simplification for Individuals and Families (240/480 brackets are matched and reduced to 1)
Status AGI Stimulus check Rate calculation Brackets Rate checking tool Budget analysis
Individuals $75,000-99,000 $1,200 - 0 $5 reduction for each $100 240 w/o smoothness No Add together
Families $150,000-198,000 $2,400 - 0 $5 reduction for each $100 480 w/o smoothness No (complex)
( Example: For Individual AGI=87,000, 87,000-75,000=12,000, then 12,000 ÷ 100 = 120 and 120 x 5 = 600. Final result = 1200 - 600 = 600 )
Simplification ($75,000-99,000)×S $1,200×S - 0 1-(AGI÷S-75,000)÷24,000 1 with smoothness Yes with 1 to 0 One slope formula
( S = 1 for individual or 2 for family )
(Example: Individual with AGI=87,000, Final result=1,200×S (1-(87,000÷1-75,000)÷24,000)=1,200×1(1-1,200÷24,000)=1200x1×0.5=$600)
5. Checking tool:
Existing tax system has no any checking tool to check calculations are right or wrong. A checking tool is provided to reduce calculation mistakes with this tax simplification.
6. Tax Analysis:
Existing 28 formulas are used to calculate tax revenue currently. With this simplification, only 3 formulas are needed for tax analysis, which has been simplified significantly.
Total Tax=0.1∑YTIm+∑(YTI2)m/769,230.8*S+0.1345∑YTIn+∑(YTI2)n/1,639,344.4*S+0.396∑YTIo-27,250*S* O
7. Federal Tax Simplification for Fair and Simple Tax Rate and Saving (Power Point to explain tax simplification)
8. Would you please join me to sign or support a public petition to simplify our tax systems and save our tax revenue (billions of dollars)
www.change.org/p/income-tax-simplification-to-save-our-tax-revenue-billions-of-dollars