Tax Anxiety
Conor Friedersdorf has a must-read piece on the complexities of the tax code and the anxieties that it causes.
Imagine, for example, that a new job forced me to commute from my house in Washington DC to an office in Northern Virginia. One night, my boss mentions that his driver lives nearby my house. “I’d be happy to have my car drive you here in the morning,” he says. “It’s no difference to me, and you could save some money on the metro.”
Prior to this week, I’d have said, “That’s awesome — thanks so much.” But apparently the right answer is, “No thanks, I’d love the ride, but owing hundreds of thousands of dollars of taxes on your gift would ruin my life!”
Or are my circumstances different in a way that would enable me to accept the rides without owing so much? I cannot figure it out. I’ve spent an hour on Google, scoured the IRS Web site, and G-chatted my most financially savvy friends. Still no conclusion, or even an educated guess, and surely I am better positioned to investigate the matter than most Americans. Obviously I could call an accountant, who could explain things to me, but given this example I’d never have thought to ask.
Nor can I easily determine, for example, whether I ought to pay some sort of tax if I hire someone to help me move boxes for a couple days, or pay a friend to design a Web site for me, or whatever. I’ve made a good faith effort to pay what I owe in taxes over my working life, but I haven’t any confidence that my returns have been perfect, and I couldn’t tell you whether I’m richer or poorer for any mistake.
Given that Tom Daschle helped write and pass the tax laws in question, I don’t feel sorry for him. But what about the rest of us?
It’s not at all obvious when, for example, someone crosses the line from “independent contractor” to “employee.” And, really, it makes no sense for individuals — as opposed to businesses — to ever have to pay taxes for contracting out services.
For those above a certain income threshold, there’s not much choice but to hire an accountant, which is itself a shame: Why should citizens have to spend a lot of money in order to ensure that they’ve paying the right amount of money to their government? But even hiring an accountant isn’t foolproof; most simply have you give them your records and they then file for you — most don’t grill you on every possible contingency.
Photo by Flickr user Cayusa under Creative Commons license.
The tax code exists as such for several reasons.
* There’s a multi-billion dollar industry that depends on it being complex as it is
* It’s much easier to hide money under a complex tax code, than it is a simple one
* It’s much easier to target individuals with an incomprehensable tax code, since understanding the thing is impossible for mere mortals.
* Actually solving the problem is not on this congress’ agenda, since the current tax code is what logically results when government decides what is ‘fair’.
As I said in the comments of one of your earlier posts on the various nominees’ tax problems, it’s not that the tax code starts out complex, it’s that it inevitably becomes complex. The incentives are overwhelming.
Regardless of how we reform the tax code, over time it will become bafflingly complex. There are only two prospective solutions. Either we institutionalize the re-writing of the tax code which as was pointed out would be chaotic or we abandon the idea of using the tax code for anything other than providing revenue.
I don’t see any way that the latter can be accomplished and the former has major problems, too. So we’d best get accustomed to an impossibly complicated tax code.
So I return to the question I’ve been asking: what kind of society do we want? An egalitarian one? A law-abiding one? A society that relies on things like honor and conscience or that has a powerful enough enforcement mechanism to enforce the laws on the books?
BTW this is the attraction of the VAT. It’s enforced at the point of sale and the increment at each step is small enough that it encourages evasion less than a regular sales tax does.
Whatever the answer to those questions we’ll be a society with a complicated tax code.
I only make 40+K per yr… But avoidance of the anxiety I feel when trying to figure out what I can and can not do… That alone is worth the price of an accountant (very reasonable in this neck of the woods).
Let’s not forget the IRS’s continual reinterpretation of its rules and laws that make what was acceptable yesterday unacceptable today.
tom p –
I don’t know what intricacies are involved in your profession, but on the surface the notion that a $40K individual needs professional acctg help is a terrible indictment of the tax code.
When you are in my business, its just part of the gig.
Drew, the Truth: I don’t. I used to do it, but I have made a couple mistakes (nothing serious, but a REAL pain in the ass) and then there is the frustration of filling out forms and doing schedules ad infinitim only to find that I got no benefit out of it, etc etc….
Like I said, anxiety. Much less strenuous to just give it all to an acct, she knows just by looking at what I give her, what I can and can not get, so I give her $60 and 2 wks later it is done.
No muss, no fuss.