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If President-electDonald Trump is able to appoint billionaire Elon Musk and former Republican presidential candidate Vivek Ramaswamy to oversee a Department of Government Efficiency (actually a nongovernment advisory group), one of Musk’s stated interests (which aligns with Trump’s) is to simplify the tax code.
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Musk claimed in a post on X (formerly Twitter) that doing so would “increase productivity” instead of “incentivizing bizarre tax-avoidance behavior.” Based on things both Trump and Musk have said on Trump’s campaign trail, likely this would look like a federal flat tax, with only a couple of tax levels based on income, instead of the current seven tax brackets currently in place.
What does this mean, however, for the average American and their ability to expect tax refunds, and other tax issues?
While there are pros and cons to a simplified tax code and filing system, one of the benefits, according to Anna Yen, a chartered financial analyst and contributing author to MoneyLion.com, is that it could simplify filing and other tax hassles, such as compliance costs, “making tax filing more convenient and less expensive for individuals and businesses.”
She said that such a simplification “reduces errors and saves time on tax preparation.” It would also plug loopholes that allow sophisticated taxpayers to exploit ambiguities and potentially increase fairness and compliance.
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However, simplifying the tax code could also eliminate many deductions and credits that benefit specific groups, such as low-income families or those with high medical expenses, Yen pointed out.
“Consequently, it leads to higher tax burdens for some individuals. Moreover, the transition to a new system can be complex and disruptive, requiring adjustments from taxpayers and the IRS,” she said.
Even the middle class relies upon numerous deductions from such things as mortgage interest, homeownership, student loan interest and more, which a tax code simplification could remove, she said.
With a new system to streamline everything, refunds could depend on further integration of withholding, according to David Milo, CFP and owner of Independent Lending.
While this ends what Milo called the “forced savings that many Americans depend on,” it also could mean you’re taking home more income in your paychecks for the majority of the year.