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Paul Ryan's Unicorn Tax Postcard

Paul Ryan is back on the teevee talking about tax reform. As always, a major goal is to simplify individual income tax filings. And this is a worthy goal, no doubt. “Imagine filing your taxes on a form the size of a postcard,” he says. “Wouldn’t that be something?” It would be something, and he even helpfully shows you the postcard. Unfortunately for the postcard-printing business, Ryan’s favorite tax-form prop would not allow you to file your taxes on its own.

It looks attractive, fourteen “simple” questions, addition, subtraction and you are done. But if you have ever looked at a IRS Form 1040, then you are well aware that it is not the “front page” that complexifies tax filing. Let’s drill down on Mr. Ryan’s postcard.

Wage and compensation income seems pretty simple. However, but there are many other types of income that are subject to taxation, such as IRA distributions, alimony and social security. Potentially, he means “total income,” but another form is going to be required to total up all of these sources. What about sole proprietorships that are ignored for tax purposes (like LobbySeven)? A Schedule C will be needed to handle that. We are one line in and already the postcard doesn’t work. Line 2 is even worse; “investment income” means a lot of different things and is taxed in a lot of different ways. For famously large tax returns, most of the paper comes from having to include the form for each of these investments: a 1099, K-1, or various others. As we saw on the Rachel Maddow Show, Donald Trump’s 1040 isn’t much more complex than yours or mine. The great stack of paper is just because he has a piece of many entities, each of which needs its own form. Now, if preferential rates on Capital Gains went away, there would be less need for all these entities and their forms. But I don’t think this is what Mr. Ryan has in mind.

Line 3 is simple enough, but Lines 4 through 6 are a real problem. All taxpayers need to decide