Common Sense for the Tax Code

The AICPA list of  suggestions to Congress for tax code changes caught my eye this week.  (After all, for those of us “inside baseball” tax season has already started, so it’s hard to get my brain thinking about other topics.)  For some reason known only to a secret cell at the Institute they came up with a list of 13 suggestions.  In a world full of  catchy improvement- list titles like “7 Habits”, “10 Best”,  “A-List for….” only a group of accountants would release the 2010 Compendium Of Legislative Proposals .  That said, what the authors lack in communications sizzle they make up for in common sense.  Not that we need to go through all 13, but here are my nominees for the  “Tackling the Tax Code Trifecta” (perhaps descriptive overkill in the opposite direction).

The first involves tax breaks around higher education.  The AICPA points out that there are 9 different credits or deductions related to paying or higher education.  Eligibility for each of these tax incentives varies by non-financial factors and then there are 6 different levels of phase out based on the taxpayer income.  According to the Compendium detail,  roughly 10-million families attempt to use these incentives annually.  The Treasury Department estimates 19% of eligible families skip the benefits and erroneous claims to education credits made by those the hardy souls who do apply have cost Uncle Sam $232 million. 

The AICPA recommends the creation of a single credit for all post-secondary expenses to be awarded on a per student rather than per taxpayer basis. There’s also advocacy for a uniform definition of qualified higher education expenses and consistent income phase-outs for all education incentives. 

My second winner on the list involves a similar approach for mileage deductions. What could be bad about standardizing mileage rates so there is one for business expenses and another for  personal costs related to charitable, medical and moving transit?  The authors of the Compendium want non- business deductions to be half of those for commerce related deductions.  I personally have always been puzzled by the particularly miserly charity deduction.  If you drive a meals on wheels route it’s 14-cents a mile off your AGI, and that’s only if you itemize. 

Third place on my list is probably less important than the previous two for most people.  It’s a recommendation to allow a deduction for AGI related to attorney fees and court costs connected to litigation that gives you taxable income. Again, this doesn’t apply to most people, but if you’ve gone through the courts and prevailed, that somehow feels like it’s not regular income.  My guess is most recipients would happily give back the money if they could avoid the wrong that was done to them.  What not let individuals deduct the costs the same way a business would?  Right now the law is a patchwork of eligibility based on the kind of litigation and the type of award. 

My cynical default is that these changes won’t make it into the tax code, but if you don’t ask, then you already know the answer…