Finding Zen after Tax Day

I know it has been almost a week since I blogged. Forgive me, I was recovering following the shock I received after tax day.

Admitting that I procrastinated way too long in doing my taxes that still did not account for the shocking revelation that I was going to owe additional rather than get a refund this year. But worse than just owing additional is the shear amount in additional that I owe. I have to take some blame in this, for not paying full attention to my paychecks. See I, in years past have claimed “Married” with 4 exemptions, for myself, my wife and my two sons. This has never been a problem, because we make so little, with those claims we still overpaid and received a refund.

This year however was different. In my inattention I did not realize several things; first that with my paltry salary (not complaining, because I love what I do, just pointing out that it is small) and that claim configuration most of the time the amount withheld from my checks was exactly $0.00. Second, with my oldest finally moving out of the house and us not “officially” providing ½ of his support for the year he was no longer a dependent. Third, because my youngest became 17 this year he no longer qualifies for a child credit. Finally, because I was able to get a deferral for my student loan, there was no large interest payment on student loans this year. The result of all of these changes is a tax bill between state and federal of about $5500.

Now before anyone reading this begins to think that I make some large amount that I just think is paltry, let me say that $5500 represents about 20% of everything I make in a year. Moreover, there was some that was paid in, specifically the proper withholding from my wife’s paychecks.

So what is my response to this…. After the shock wore off, I realized that I owe it, and will pay it because that is what I am supposed to do. The government provides services that have to be paid for, specifically national defense and interstate transportation, among a few others. But, I am not happy with the process. I have not been happy with the process for a long time, but it was more an academic disagreement, rather than a personal one.

I have known over the years, due to my practice as an attorney, many people who have gotten themselves in trouble with the IRS. Most often this trouble comes not from them trying to avoid taxes, or cheat the system in any way, but rather from the absolute inability for anyone to fully understand the tax system in this country. I have a couple of classmates who went on to specialize in tax law, and they agree that the system is a joke, there are so many exceptions to the rules, that the rules are impossible to understand and truly predict. They are paid hundreds of thousands of dollars each year by businesses, for whom a tax error could mean the end of the business, because without the tax advantages built into the system for specific things, the base taxes are so onerous that it is impossible for a business to exist ignoring the tax consequences of every decision they make.

That last statement is just SAD! It means that at this point in time the effect of government on businesses drives decisions and not the effect of the marketplace. What is so sad about that for the individual is that for anyone who just wants to live their life, and pay their taxes, they can’t do it. Like me, I just worked and wanted to pay my taxes, but because I don’t own a home, I don’t get the discount given for home mortgage interest, and because I raised my kids and they are no longer under my roof, no deduction, and because I drive a motorcycle everywhere (which is more fuel efficient than most hybrids and almost all “alternative fuel” vehicles) rather than a “green” car I don’t get the credit given to those people. So, because I did not take specific steps that the government, and not the market, thought were important, I lost all the deductions that I might have otherwise been able to take advantage of. And, because the tax code is written to promote specific activities, it becomes burdensome on anyone who doesn’t want to practice those activities, thus I am now paying much greater % of my income in taxes than I otherwise would with my limited income. But then, I don’t want to live my life by what a politician wants me to do, rather I would like to pursue my own happiness.

So, now that this is personal, rather than academic, what options are there to resolve this issue. After all, I cannot be the only person dealing with this dilemma. The answer is to take the power to direct every single little portion of our lives out of the hands of politicians. No, I am not advocating disbanding the idea of taxation, after all we have to have $ to pay for those necessary services. What we don’t need is a big brother government entity snooping into every private aspect of our lives to see where we spend every penny we make. It is ludicrous that tax forms take more than 10 min to fill out, and that we have to tell some bureaucrat how much we spent on food, gas, insurance, and even how much we gave away in order to keep from having to pay an inordinate more than our shares. Because I have, academically, had problems with the tax code in the past I have looked into several options to take that power out of the hands of politicians.

My personal preference is a flat tax percentage. Tax time would take 10 min max. How much did you make? Multiply that by X% and send it in. But the big problem with such a system is that people don’t save, and it becomes onerous on those in the very bottom of the income curve. Thus, the best actually workable solution I have found it the Fair Tax as promoted by congressman John Linder, or more famously promoted by Neal Boortz, the talk radio jockey.

The Fair Tax, as a plan is about as workable and sensible as I have seen. It is a national sales tax. It moves the entire tax burden to purchasers, that is everyone of us. It is progressive in nature because obviously those who earn more spend more. And the best part is that it moves the power, and noses of politicians out of my pocketbook and life and returns the power to the people with the purse (that would be the citizen in case you didn’t get that.) Moreover, it would make the most onerous federal administration a friend to the poor, and a welcome part of everyone’s lives. This is because the IRS becomes a vehicle for issuing refunds for the taxes spent on necessities, rather than the long arm of big brother collecting by threat of imprisonment. So, for a family of four (and these numbers are completely made up, but are used as an example to make a point,) it is a necessity to eat. So the IRS determines that a family of four, shopping economically can eat for a month for $500, and when they did so they spent $125 on the taxes, making their total food bill $625. Well, because that is a necessity the IRS would send a check back to the family for $125. But obviously that $500 would not buy filet for every meal, and would not allow for caviar, or even several nice bottles of wine. If you have the income to splurge on such extravagances, you may spend $1000 a month on food, and pay $250 in taxes, you would still get a refund check for $125, and the rest would go to taxes. Thus, the poorest in the country don’t pay an unfair share of the tax burden, because they can’t afford anything more than the necessities, for which the tax is refunded.

The beauty of this system is that when a politician starts talking about how much something will cost in Washington, or even in your state capital, it will not be some “billions of dollars” that doesn’t register with you and your pocketbook. The politician will have to come to the people and say, this measure will cost you an extra 10th of a penny every time you spend a dollar. You want to see people get involved in politics, make them see what effect every action has on their pocketbook.

OK, stepping off the soap box with this last statement, if any of this makes sense to you, please go to www.fairtax.org and offer your support, and if it doesn’t make any sense to you please go to www.fairtax.org and read up on the plan, at least get informed.

Thank you for this dalliance, I know this post was long, but when I start talking politics it can sometimes take a bit to explain what I want to say. I will try to get back to less heated topics in future posts.

Retro