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Tweak it, or blow it up?

Readers differ on the income tax system they want, but unite in calling for changes to the current one.

By HELEN HUNTLEY
Published February 6, 2005

	[Times illustration: Jeff Goertzen]

St. Petersburg Times readers have some advice for President Bush: Get rid of the income tax system as we know it.

"The arcane federal tax code is long overdue for major reform or elimination," said Jim McBaine, 59, of Largo, one of about 70 readers who wrote with suggestions for tax reform.

The president has appointed a nine-member committee headed by former U.S. Sen. Connie Mack of Florida to study and recommend tax reform. Bush has pushed for a simpler, fairer system by arguing that "the tax code is a complicated mess" that hampers economic growth. Readers from 30-year-old Bryan Marks to 93-year-old Henry Kreider responded to the Times' invitation to share ideas as the president's panel gears up for action. Dozens of them want to scrap the graduated income tax and replace it with either a flat tax on income or with a national sales tax. Another contingent offered proposals for smaller changes.

The current system engenders ire among Times readers for its complexity and for what many see as its bias toward the wealthy and businesses. Marks, of St. Petersburg, said we need to "start making the large corporations pay their taxes instead of receiving all the tax breaks." Kreider, who also lives in St. Petersburg, told us "simplification for the ordinary man would be appreciated."

Robert Wilson, 69, of Tarpon Springs, complained on both counts: "As someone with an MBA from MIT, I still can't fill out the income tax form unassisted," he said. "Only working people receiving a W-2 form pay anywhere near their fair share."

Indeed, the rich don't have much of a fan club. Gus Lawrence, 68, of Hudson, said, "The tax structure is unfair. The richer you are, the less you pay and are able to take advantage of the tax loopholes."

The appeal of the flat tax as an alternative is its simplicity: Everybody, regardless of income, pays the same tax rate.

"By eliminating all deductions and credits, we would only need to report income, which could be done on a single page," said Sam Allan, 46, of Clearwater. "Of course, that might be too simple for some tax preparers, who would need to find another line of work since the average person would then be able to do their own taxes."

Allan suggests a flat rate of 19 percent as revenue neutral.

Ed Shea, 76, of Palm Harbor, offered his own version of the flat tax: Assess individuals 10 percent of their gross income and small businesses (less than $100-million in revenue) 12 percent. He wants to sock it to the bigger businesses with a 22 percent tax rate.

"Tax rate is doubled when fraud is found," he proposed.

Of course, a crucial element of this plan is the elimination of all deductions.

"No one gets to write off large business expenses, presidential libraries, expensive homes, big parties, etc.," Thomas Maher, 67, of Tampa said. "The rich would thus have to pay their fair share instead of the middle class in effect paying the rich people's taxes for them."

To make the flat tax progressive, some proposals exempt low-income people from the tax.

Other proposals favor systems completely divorced from income. One idea that intrigues a few readers is taxing wealth.

Jack Levine, 76, of Palm Harbor wants to tax land, business value, stocks, bonds, homes, money in the bank and any other form of wealth.

"After giving everyone a basic deduction, tax the rest at 1 percent," he said. "There is enough data out there to keep track of wealth. The underground economy, which saps billions from tax collections, would be eliminated. Change the loopholes which let business and individuals offshore their wealth, and perhaps that 1 percent rate could be reduced."

Florida's existing intangibles tax is a tax on some forms of wealth, but it includes many exemptions, which is not what Levine has in mind.

Neil Cosentino, 68, of Tampa promotes what he calls "a national ownership based tax structure." He says everyone would pay a minimum tax, but most revenue would come from taxes on the value of investments and businesses.

"The concept is similar to a corporation paying insurance on what they own," he said. "One pays taxes to protect, maintain or increase the value of what you own." He would exempt bank savings accounts to encourage people to save money.

Proposals to replace the income tax with a national sales tax generated the most enthusiasm, with several letters supporting a specific proposal known as the FairTax (www.fairtax.org)

Supporters want to replace not only income taxes, but also Social Security, Medicare, estate and corporate income taxes. Their alternative is a national sales tax on new goods and services of 30 percent. That's equivalent to a 23 percent tax on income, but FairTax supporters say most people would end up with more after-tax money than they have now.

Although food and medicine would be taxed, taxpayers would get a monthly check from the government representing a refund of the tax on a basic level of goods and services. According to the group's calculations, a family of four would get a monthly check of $479.

"We double the taxable base and we get a huge pick-up from the currently untaxed trillion-dollar underground economy," said Thomas Wright, 54, of Clearwater, the group's executive director. "The FairTax allows Americans to keep 100 percent of their paychecks (minus any state income taxes), ends corporate taxes and compliance costs hidden in the retail cost of goods and services, and fully funds the federal government while fulfilling the promise of Social Security and Medicare."

He says prices of most goods would fall because companies no longer would have to pay corporate income taxes or Social Security taxes for their workers.

Many people like the idea that everyone would pay something with a sales tax.

"Everyone gets some form of income, but not everyone pays income taxes," notes Walter Willett, 66, of Palm Harbor. "Much of the work done in the United States is covered by cash payments. However, all these people buy food, clothes and alcohol."

He suggests using tax refunds to reward charitable deductions, to partially refund property taxes, to help low-income families and to ease the pain for real estate investors who bought property expecting to qualify for tax breaks.

Some people support a sales tax even though they expect it would cost them.

"There should be a sales tax, even for me," said William Miskove, 80, of Clearwater. "I don't make enough to pay federal tax, but if it was a sales tax I would have to pay on everything, including food."

He suggests taxing luxury items at a higher rate, specifically mentioning gold teeth, high-priced cars and hairdos, designer clothes and unnecessary plastic surgery.

Several people suggested tax combinations. Gil Weber, 75, of Spring Hill wants a flat income tax of 10 percent after deductions, plus a national sales tax of 5 percent on everything except food and drugs.

Nat Rand, 88, of Tampa likes the idea of a value-added tax collected at each stage of production, combined with a flat tax that applies only to incomes of more than $100,000.

While some people have drastic overhauls in mind, others proposed what might be considered minor tweaking. Many cited a pet peeve, such as the tax on Social Security benefits.

"Taxing Social Security benefits is totally unfair to middle-class taxpayers who have worked all their lives," said Caesar Civitella, 81, of St. Petersburg.

At the very least, some suggested, the income threshold at which benefits are taxed should be increased to account for inflation.

St. Petersburg accountant Celia Hall, 56, offered a different twist on Social Security:

"Taxpayers should be offered a tax credit or deduction for not taking Social Security benefits," she said. "This gives the wealthy an incentive to relinquish this benefit."

The reduced tax rate on stock dividends, which took effect on last year's tax returns, doesn't sit well with some people.

"The tax cut on dividend income should be eliminated," said Dan Favero, 54, St. Petersburg. "We were told this cut was to spur investments and help the economy, yet those who earn interest by investing in corporate bonds and bank certificates of deposit received no help at all. . . . Capital gains income should also be taxed the same as other income. The nurse, the policeman, the factory worker, etc., are just as important to the growth of our economy as the investor."

On the other hand, Karen Sherif, 58, of St. Petersburg thinks the tax breaks investors got last year didn't go far enough.

"Reward savers by making some or all interest tax free," she said. "Eliminate capital gains tax on houses and stocks to encourage home ownership and investments and reduce the need for many Schedule D's."

But Jim Parker, 53, of Tampa says it's important to keep provisions that encourage businesses to invest: "Our economy cannot grow without capital investment and the incentives that stimulate it."

Another St. Petersburg accountant, Irv Bernheim, 46, chimed in with a list of ideas he said would make things simpler and more fair:

"Get rid of the marriage penalties," he said. "I suggest creating one tax rate table for married, married filing separate and single taxpayers. Give couples the option of filing joint or separate."

Bernheim wants to cut self-employment taxes, increase IRA contributions and eliminate some of the phaseouts that take deductions away from high-income taxpayers.

Some people want to shift more of the tax burden to big business, but others are sympathetic to corporate causes.

William Hutchinson, 82, of St. Petersburg thinks the corporate income tax should be abolished. "That tax is merely added to production costs and the consumer pays it," he said. "Untax corporate profits instead of dividends. This will put the tax money on the profits back in the Treasury when the executives pay their federal income tax."

Several readers acknowledged that tax reform won't be easy.

"In my experience, people believe a tax is fair when it taxes someone else," accountant Bernheim said.

Helen Huntley can be reached at 727 893-8230 or huntley@sptimes.com

Matt Waters, 34, Palm Harbor: A flat sales tax would hold everyone accountable - a rare thing in this country - for their spending.

Joyce Moore, 57, Clearwater: Go with a flat tax on sales rather than on income. That way all the foreign money coming in would help pay our taxes.

Alan Hilkene, 72, Oldsmar: Any tax code held hostage to entrenched interests as mortgage interest and the like needs fixing!

Jim Parker, 53, Tampa: Our economy cannot grow without capital investment and the incentives that stimulate it.

Bryan Marks, 30, St. Petersburg: Start making the large corporations pay their taxes instead of receiving all the tax breaks; offer substantial tax breaks to small and medium-sized companies instead.

Bill Clark, 79, Homosassa: I do not want the revamping to be in any way under the influence of George W. Bush. Everything he touches means more tax breaks for business and the rich, and none for the rest of us.

Jackie Salmon, 65, Tarpon Springs: There should be a flat tax for all taxpayers, no exemptions, no loopholes for anyone or anything. Everyone pays the same percentage regardless of income.

Henry Kreider, 93, St. Petersburg: The (tax code) language used may be clear to lawyers and financially trained people, but simplification for the ordinary man would be appreciated.

Karen Sherif, 58, St. Petersburg: The complexity of the tax code is due to all the special-interest groups bringing pressure on Congress. I doubt any major changes can be made.

[Last modified February 6, 2005, 01:08:38]