Tax System Too Complicated
Bob Formaini, a Senior Economist and Public Policy Advisor at the Federal Reserve Bank of Dallas, finally realized that he was incompetent to do his own taxes.
There is something wrong with a tax code that requires so much paperwork, so many hours of preparation, so much frustration with the endless record keeping that the law demands. And that’s just for individuals. The burdens on business are staggering. Even so, our return no doubt is, for our accountant, a baby sort of thing. I doubt that he even worked up a mild sweat. Compared with the returns he does for a living — a living created by Congress and their inability to have a simple tax code and for which I certainly do not begrudge him — our return is probably a laugher. And yet, to a guy like me with four college degrees including a PhD, it might as well be written in Klingonese. I have become, along with most of my fellow citizens, just another helpless dunce who can’t deal with the complexities that our wonderful politicians yearly serve up. The upside, assuming there is one, of being a helpless dunce is that one can no longer be held responsible. Unless Congress, “simplifying the tax laws” once more, decides that the old legal doctrine of mens rea is no longer the standard for criminal behavior. If that happens, were all potentially in some very serious trouble.
I only have three degrees, none of them in economics, and can still manage to file my taxes each year. Like Formaini, though, I’m not really sure that I’m doing them right. It’s essentially voodoo to me: I download and install that year’s edition of TaxCut, answer the questions it asks, look at it for obvious errors, and then file electronically.
Unless we abolish the income tax entirely, though, I’m not sure we’ll ever fix it. Even if we started over with a “flat” tax–which will never happen–it would soon be larded with various exceptions, exemptions, deductions, incentives, and whatnot in order to achieve some social policy through the back door.
Use Turbo Tax.
The simplest way to avoid having to do too much complicated tax filing is to lower your income. I can testify to this from recent personal experience.
Luckily the last four years has given so many of us a unique opportunity to do this:
“(CBS) The nation’s payroll growth slowed dramatically in July with a paltry 32,000 jobs being added a potentially troubling sign that the rough patch the economy hit in June could spread.
It was the slowest job growth of the year.
Economists were expecting much stronger payroll growth of about 235,000 in July, according to a survey conducted by CBS MarketWatch.
Payroll growth in May and June was revised lower by a cumulative 61,000, showing the job market is weaker than commonly thought. June was revised to 78,000 from 112,000 while May was revised down to 208,000 from 235,000….”
But, hey, James, you gotta nice tax cut didn’t you? A real good chunk of change at your income level, I’d bet. That’s not too much to pay for with a little complication is it?
My tax simplification tips:
1. Don’t buy a house. If you do, never sell it or rent it.
2. Don’t invest in stocks or mutual funds. Again, if you do, never sell.
Amount of money earned doesn’t make a difference, really. The problems start when you begin making money that doesn’t go into the ‘wages and tips’ block.
I took a ten-fold reduction in taxable income this year after coming off active duty and my form was no more or less complicated than that of the previous three years.
My worst year was when I sold a bit of my mutual fund holding the year before I joined. Gotta love long-term capital gains.
My father does his own taxes and feels confident doing them, but the amount of work he has to do to prepare them in some years is a bit insane.
The best tax simplification tip is to marry a rich widow and let her deal with the tax forms.
And let’s not forget the new “bracket creep” — the AMT. With each passing year more and more taxpayers (including me) are getting hit with this indecipherable monstrosity, such that most people will have to do their taxes twice.
I do not see the national sales tax as being any better than a totally complete flat tax. From experience with state sales tax, it is clear that the complications can abound there with efforts to write special exemptions in, treat different types of sales differently, etc. The problem is compounded when you try to do the programming necessary for point of sales tax collection. If you want to see how really simple a flat tax taken to its logical conclusion can be, I have written a 30 section internal revenue code and explanation which is available in PDF format on my website http://www.flawedlaws.com.
But the complexities of the tax code create jobs for accountants at the IRS and H&R Block!
(Yes, I actually had someone make this argument to me recently.)