Tax reform is coming - again (and again, and again!) It seems that every few years, the government realizes that the tax code is broken and they make a bunch of changes to "fix" it. More precisely, they usually ADD a bunch of new laws, making the labyrinth of regulations so complex that not even the trustiest and experienced of tax advisors can really say what's what anymore.
There are three tax laws that, in my opinion, should be first on the chopping block:
This is one of the least popular (if ANY tax law can be considered "popular") regulations on the books. It came about in 1970 as a way to make sure that the wealthy paid some minimum tax, no matter how many deductions they were able to scrape up. It was, from the start, a half baked idea - and the regulations have gotten so complex over the years as the laws are patched to fill in the loopholes that a small number of taxpayers still manage to take advantage of. The result is a ridiculous accounting overhead - almost everyone who is approaching middle-class or above needs to watch out for the dreaded AMT. Really, how much does the nation overall spend with accountants and software engineers to program all the laws into tax software? Fix the regular tax code, and get rid of this piece of garbage and everyone will be happier.
Unfair, I tell you - it's just downright unfair! (I'm taking off my shoe and pounding it on the table now). Individuals are taxed on all capital gains, with no limits - but when the tide turns and they have losses, you can only deduct $3,000 of such losses per year. That was probably a fair amount in the 1960's, but for today's economy the number should be more like $300,000 - at least!
It's amazing that the "Tax Simplification" act of 1986 came up with one of the most complex set of tax rules ever. You have active gains, passive gains, capital gains, regular income, and a byzantine web of rules dictating what gains or losses from one category can be offset against another. The rules on passive activity losses are the ones that especially need to be revisited. It's always been a ridiculous tax code, but no one really cared as long as real estate prices were rising. Now, it's a ball and chain on anyone that has rental properties or any type of "passive" losses.
Sure, there are a bunch of other changes that could be made - but fixing these three would make the biggest difference to the most people.