Monday, January 30, 2012

Tax Time

I did my taxes yesterday and was left shaking my head at how screwed up the tax system is in the United States.  It takes a guy with a master's degree and 20 years of experience in finance 4 hours to do do a return, and it's now so hard to do a paper return that I paid $58 to file my state and federal returns electronically.  At least I didn't have to pay for the stamps and envelopes.

In the end, I paid about 15% of my income in Federal taxes, more than Mitt Romney.  That's insane, but the REALLY insane thing there is that if the roughly $18,000 I paid in rent had been a mortgage payment, I would have qualified for itemized deductions and paid about $2,000 less.  The system really is bent in favor of folks who have mortgages.  I know I benefited from that system when I had one, but now that I am a renter, it does seem to be rather unfair to give such a giant tax break to any one group.

I know the tax code is rife with other examples, from the capital gains tax rate being far lower than the rate on earned income to the solar tax credit to the hybrid cars credit to the investment costs credit.  After spending all afternoon entering all the stuff I gave away to charity last year only to be told that I don't qualify for that deduction, I've got to admit that I am a flat tax guy at this point. 

All the loopholes and thresholds and schedules and credits and alternatives, I have to say there has to be a better way.  The tax code has created its own $9 billion sector of the economy.  Imagine what Americans could do with that money if they weren't spending it on TurboTax or H&R Block.  That's 1.5 million week-long vacations to Disney World's Animal Kingdom Lodge, including flights, character meals and Park Hopper passes.  Or, for my right wing, gun-nut readers, roughly 536,000 Colt M16-A1 machine guns for 'home protection.'

Anyway, to look a bit closer at the numbers, I paid about 26% of my total income in taxes last year when you look at federal, state, local and social security taxes.  That's more than I paid for shelter or transportation last year.  In fact, when viewed as a single budget item, it's the largest.

Granted, my kids got a good education of that money.  Private school would have been more expensive. I had the protection of my local police and fire departments and the military to make sure that I am safe. That's worth something too. I also got free roads to drive on to work every day.  Oh wait. No. I pay another $1,000 a year to cross the bridge. I don't get free health care or child care or anything like that for my taxes, like I might in Europe.  Those things cost me me another $6,000 a year or so.

And these were only the taxes that were taken out of my check.  I have not even begun to total up the taxes on gasoline, clothes, dining out, services and the like that I paid last year.  I would have to guess that would add another few thousand dollars to my tally.

When it comes to government size and accountability, I am a conservative.  The Commerce Department?  Really? Rick Perry was right, even if he couldn't remember all the departments he wanted to cut.  We need a more basic approach to government and a more fair way for Americans to pay for it.  That we tax children's clothing in many states is simple insanity. 

I think it's time that there was a basic flat tax that exempted some base income for a single person or family and then taxed all income above that number at a flat rate.  Your basic minimum expenses would be exempt from taxation, but above that everyone would pay a fair share.  No more special exemptions for herding llamas or investing in proton accelerator heating plants. 

If you risk some money to make money, then the gains on that risk should still be taxed, but some allowance should be made for the risk.  Not the roughly 50% reduction that folks see now, but something.

I know.  Pretty boring topic for a Monday.  Imagine how worked up I would have been if I had OWED money!


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