A quarter of the S&P 500 companies report earnings next week, and that could buffet the market as investors await the July Fed meeting.Market Insiderread more
Iran's Revolutionary Guard claims a British tanker it still holds, Stena Impero, failed to follow international maritime rules.World Newsread more
Amazon hires Trump-allied lobbyist Jeff Miller as battle for Pentagon contract heats up.Politicsread more
In a series of tweets, the president addressed an unusual controversy stemming from a speech delivered Thursday by New York Fed President John Williams.Marketsread more
"You need to understand that we're about to embark on the busiest week of the year for industrial earnings," CNBC's Jim Cramer says.Mad Money with Jim Cramerread more
Boston Federal Reserve President Eric Rosengren is lining up against an apparent push to cut interest rates, telling CNBC in an interview Friday that the central bank can...The Fedread more
The MTA reported that the 1, 2, 3, 4, 5 and 6 trains are all facing delays due to a network communications issue impacting service in both directions, NBC New York reports.Transportationread more
Companies aren't waiting for the U.S.-China trade war to be resolved, says the head of the world's biggest money manager.Investingread more
US officials including Treasury Secretary Steven Mnuchin and White House economic adviser Larry Kudlow will host a meeting at the White House on Monday of semiconductor and...Technologyread more
Trump's constant berating of the Fed and its actions does not influence the central bank's decisions, Boston Fed's Eric Rosengren says.The Fedread more
The lawsuits allege J&J's talc-based baby powder contained asbestos and caused ovarian and other cancers.Health and Scienceread more
As Republicans rally behind a big push for tax cuts, expect to hear one idea over and over: that a major goal of reform is to make the tax code so simple you could file your taxes on a postcard.
Paul Ryan floated this notion — complete with a postcard mock-up — in his 2016 campaign policy document "A Better Way." And according to Majority Whip Steve Scalise, as quoted by Jeremy Beaman in the Washington Examiner, this is an idea that "gets people excited" about tax reform. That's a key messaging goal for Republicans because the actual underlying policy objective — reducing the tax rate paid by very rich people and large corporations — isn't popular, so you need to yoke it to something that is popular, like filing your taxes on a postcard.
As Ryan said in an August 8 speech on taxes to business leaders, "We will consolidate the existing seven brackets into three, double the standard deduction, and simplify things to the point that you can do your taxes on a form the size of a postcard. This, instead of the 1040 form. Wouldn't that be nice?"
More from Vox:
Trump wants to kick trans troops out. "Deployability" might keep them in.
A federal judge just blocked Texas's attempt to punish "sanctuary cities"
Trump says the US has the highest corporate tax rate in the world. He's wrong.
It would be pretty nice. That said, the ideas Ryan is proposing are neither necessary nor sufficient to achieve that goal. Republican tax plans feature large, costly changes that have nothing to do with simplifying the process of filling out tax forms. And they also retain features of the existing tax code that require some people to engage in fairly laborious paperwork in order to do their taxes properly — solving the problem by filling their model postcard with hand waving and asterisks.
Fundamentally, greatly simplifying tax compliance for a majority of Americans doesn't require changing the tax code at all — it simply requires challenging the entrenched lobbying power of the accounting industry and tax prep software vendors.
The postcard mocked up by the House Ways and Means Committee, the body that writes tax legislation in the lower House, does indeed look pretty simple at first glance:
But there are two main issues.
One is that line 3's reference to "specified savings plans" is completely punting on the question of what the specified savings plans are.
The other is that in lines 9, 10, and 11, the form achieves simplicity by saying nothing at all about what the relevant credits are or who is eligible to claim them and in what quantity.
To make either of these provisions work, you would, in practice, need to work with some additional forms. The postcard would just be a starting point. The existing IRS tax compliance process essentially arrives at the same conclusion in reverse. For people with simple tax situations that don't involve claiming these credits or making contributions to special tax-preferred accounts, you already don't need to fill out Form 1040. Instead you use Form 1040 EZ (it's easy, get it?) which looks a lot like Ryan's postcard.
The big reason that 1040 EZ takes up a full page rather than getting down to postcard size is that the IRS made room for boring stuff like your name, address, and Social Security number. They have a place for you to sign your name, and also a place for your accountant to sign her name if she helped you with your taxes. If you're a married couple filing jointly, they have space for your spouse's name and signature. The IRS lets you say which bank account you'd like to have your refund deposited in.
It's possible that rather than using a standard 8.5 x 11 inch sheet of paper, you could fit this extra stuff onto the back side of a postcard. On the other hand, you might prefer to have your personal financial information in a sealed envelope rather than slap it on the outside of a postcard that any mail carrier can read.
Either way, this is a page layout problem and not a tax policy problem. And Republicans' key tax policy ideas — that rates should be lower and less progressive, and that investment income should receive favorable treatment — play no role in the simplification.
Both form 1040 EZ and the Better Way postcard gain themselves a great deal of simplicity by telling people to compute their actual taxes owed by consulting a separately published tax table. That's where the different rates and brackets are applied to translate a given amount of taxable income into a given amount of taxes that you need to pay. The Better Way doesn't do away with the need to consult the tax table.
And as long as you are consulting a tax table, the key element of the Better Way plan — consolidating the existing array of tax brackets into only three, leaving high-income tax payers to pay at a much lower rate — is playing no simplification role at all. With the assistance of a handy tax table, you could easily have a system with a dozen — or even two dozen — brackets. The only real limitation is how many lines you can fit on a page.
Indeed, if instead of asking people to check a paper table you had them plug a number into a website or a mobile phone app, you could use calculus to devise a system with an infinite number of infinitesimal tax brackets without meaningfully making the system more complicated. Yet these tax changes are a really big deal. According to the Tax Policy Center, they could reduce federal tax revenue by as much as $7.8 trillion over the span of ten years. If Republicans get as bold as they sometimes say they will about eliminating deductions, that number might get down to "only" $3.5 trillion. Under either scenario, multi-millionaires in the top 0.1 percent of the population are looking at an enormous windfall that will boost their after-tax incomes by 12-20 percent.
Middle class families would get relatively little. And if that multi-trillion dollar revenue hole is actually offset by spending cuts as Republicans say they want to do, middle class families will end up worse off.
Yet if Congress were willing to challenge the entrenched interests of companies like H&R Block and Intuit, it would be possible to achieve much greater simplification than Ryan or Trump is promising without any loss of revenue.
Japan, the United Kingdom, and several other countries have adopted a system known as "precision withholding" that lets taxpayers avoid filing any kind of tax return at all. The tax return, at the end of the day, is an anachronistic legacy of the old days of paper record-keeping when it wouldn't have been feasible to calculate taxes without outsourcing a huge share of the work to individual families.
These days, in countries that have implemented modern tax systems, the tax agency simply takes exactly the right amount out of every paycheck. If they find that a mistake was made — not accounting for a charitable donation or mortgage interest, for example — they find that mistake in charity and bank records, and they fix it for you. In journalist T.R. Reid's great new book A Fine Mess, he explains how the Japanese system works:
Japan's equivalent of the IRS, Kokuzeicho, gathers all the pertinent data for each worker — income, taxable benefits, number of personal exemptions, tax withheld, and so on — and then computes how much the worker owes in tax, down to the last yen. Because Japan uses a system known as "precision withholding," with the amount changing whenever pay goes up or down, most people withhold the exact amount due.
In early March, Kokuzeicho sends a postcard to every citizen that sets forth all this information: how much you earned, how much tax you owe, how much tax you've already paid through withholding. If you've paid in more tax than you owe, Kokuzeicho deposits the refund amount in your bank account; if you did not withhold enough, the agency takes the tax that's due from your bank account. …
As a result, paying income tax is a totally automatic process for about 80 percent of Japanese households, requiring no more work than reading a postcard once a year.
Japan's top income tax bracket is 45 percent, by the way, and it's levied on incomes of over $350,000 a year. There is absolutely no need to bundle this kind of radical tax simplification with giant tax cuts. It's easy to file your taxes in Japan because the Japanese government decided to make it a priority.
That's a choice that American conservatives have fought against, tooth and nail, with the help of predatory tax services companies like H&R Block and Intuit (the makers of TurboTax). When Sens. Ron Wyden (D-OR) and Dan Coats (R-IN) introduced a fairly timid, intentionally bipartisan tax reform bill in 2011 and included a proposal for return-free filing, anti-tax crusader Grover Norquist blasted it, writing in a letter to the senators that "the clear goal of this measure is to raise taxes in a way that leaves politicians with clean hands." Norquist wants to make taxes complicated so people hate them, just as Intuit wants them complicated so that people remain dependent on its terrible, unnecessary software.
Back in 2016, Elizabeth Warren (D-MA) proposed a kind of intermediary step to the Japanese system — sponsoring legislation that would direct the IRS to develop its own in-house tax prep software that would make it free and easy for normal people to file their taxes. Hillary Clinton endorsed her plan, as did Bernie Sanders, Al Franken, Tammy Baldwin, and other Senate Democrats. But postcard-touting Republicans haven't been interested.
Commentary by Matthew Yglesias, a writer at Vox. Follow him on Twitter .
For more insight from CNBC contributors, follow @CNBCopinion on Twitter.