Quote:
Originally Posted by redpoint5
This is an example of why our tax code, and most law, is either profoundly dumb, or profoundly corrupt.
What you describe is the difference between what is considered a "refundable" tax credit, and "non-refundable". Refundable credits pay out cash if you don't have enough tax liability. Non-refundable does not. To complicate things even further, some tax credits "carry-over", meaning if you don't have the full tax liability in a single year, the remainder of the credit carries over to the next year (up to the duration of the carry over).
I'm not usually the "burn it to the ground" type, but our idiotic tax law easily fits the criteria of needing to be sent to the woodchipper. There's no way that's happening though, because both political parties can take advantage of us dullards towards their elitist ends.
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I'm generally in agreement. Using the tax code to punish or reward people for doing things is stupid and overly complicated. However, we have been doing it that way for decades and I don't see it changing.
Personally I'd like to see simple graduated tax brackets without deductions and with all income treated the same. Taxes should also be paid based on individual liability not by family unit. Do that and tax prep wouldn't be required. The funny thing is most wealthy countries do it this way and the government does your taxes and send the bill - it isn't up to the individual to calculate their tax bill with the threat of huge fines or jail if they do it wrong. The idea of the government calculating taxes comes up periodically and then is tabled do to strong opposition from the tax prep and accounting lobbies telling congress how many people would lose their jobs if paying taxes was easy.
If the government wants to give people money to do things that can be done as a point of sale rebate - no different than when a company provides a discount.
Part of the problem is our puritanical desire to decide who "deserves" a certain credit and who doesn't. Means testing is pretty much overwhelmingly found to cost more than a simple level system but the public HATES the idea of someone "undeserving" getting a dollar from the feds.