One CPA I spoke to about the concept of a flat tax mentioned that the hardest thing in the tax code isn't figuring out the percentage that should be paid or the amount that should be deducted. It is figuring out what "income" is. While I'm not even close to an expert, that makes sense to me.
If I'm a fat-cat CEO it may be a lot easier to get the company to provide "benefits" that don't get counted as income. Do you count the value of your health coverage as income? What about a company car that you get to use? What about a company jet? Would a flat tax eliminate the difference between pre-tax and post-tax money that currently exists?
If we're trying to figure out what defines corporate income, I think it is probably even more difficult. Is income defined the same as revenue? profit? I suppose that is it probably somewhere in between those two. That means that income is really hard to define. So hard that there will always be thick books for accountants to peruse to figure it out.
How hard is it really for me as an individual to figure out my income tax right now? Pretty easy. I just punch my information into the software and it spits out the right answers. I can read the income figures right off my W-2. No problem. The difficulty in the tax code has always been and will probably continue to be with the people or entities that can't define their income with a simple W-2 or 1099.
This post was inspired by a post at Dynamic Range.
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