Tuesday, April 18, 2006

You're working for no one but me

The Internal Revenue Service provides a vital civil function by giving all Americans with one thing which we can all piss and moan about as a unified people. And this being the right time of year, here's my entry.

I think the USA is a great country, and I'm proud to live in it, and, all things considered, I think the price is right. When I consider what some people have to give their governments, or what they have to take from them, I can't say I feel like I pay too much.

However, I feel it takes far too much stress, record keeping, and research for the average wage slave to fill out their taxes. Paying taxes is like some real world version of Deal Or No Deal. Except the shadowy banker might actually decide your number is negative, and you never find out what the right briefcase is, and if you play too aggressively, you end up as Willie Nelson's cellmate.

So I've got a modest proposal: eliminate all deductions.

That's right, all of them. Every line we can eliminate from the tax code makes it easier to know where you stand. It reduces the possibility of fraud, and the need to amend returns. It simplifies record-keeping and the need to spend money on professionals or software, for taxpayers and the government. Just add up all the income deducted, divide it by the number of taxpayers, and farm it out equally to all. If it's not so obviously a gameable system, there's no fear like you're committing a crime, and no worry you're getting taken unfairly to the cleaners.

We don't need deductions for mortgage interest. Every mythology since the dawn of time has known that Home is a very powerful concept in the human psyche. People will buy houses anyway.

Yes, there are some rich people who'll stop donating to charity if the government doesn't give them 30% of their donation back. Shame on them, and shame on their families for raising them so poorly. The rest of us know that kindness is its own reward.

I'm awfully, awfully happy to take your money because Alison started grad school. (Thanks for that.) But for the life of me, I can't fathom how it's better to have tax credits for education than just spend the money on scholarships.

As I see it, itemized deductions do two things: they let the government shape our behavior, and they let them patronize us on feel-good issues. So to heck with that. Let's stop pretending that the government knows when we're spending our money right.

It leaves the question of what we'll whine about this time next year, but I bet we'll think of something.


Blogger tommyspoon said...

My problem with your proposal is that it is all stick and no carrot. Governments "shape our behavior" all the time (I think that's what those "laws" are for). It's not the taxes themselves that people bitch about, it's the perceived unfairness of the tax system. According to the recent Ipsos poll, 80% of Americans believe the tax system is unfair. I think the government can do something very simple to remedy this problem.

So I'll see your proposal and flip it on its head. We should target tax deductions to the people who need them the most: those earning below $100K/year (single filer) or $150K/year (filing jointly). You earn over those amounts and you get no deductions.

Tax deductions aren't the problem. The problem is that only the well-off can take full advantage of them. And that's just not fair.

6:58 AM, April 18, 2006  
Blogger Joe said...

Tom, your proposal keeps all of the recordkeeping requirements, all of the preparation time, all of the potential for error, on the middle and lower class. You've just made tax paying easier for the rich... and neither side will be happy about it. (Plus, the AMT already does pretty much what you've described, just less efficiently.)

As far as the carrot, my argument is that we should not just hike taxes by eliminating deductions, but use the savings to increase the amount of the standard deduction. This will deliver some of those deductions to people who wouldn't otherwise get them, while reducing the incentive for a lot of people to spend their time and money trying to beat the standard.

If the government wants to give away money, it should just spend money. It's better for the economy and more effective.

But what can possibly be more fair than "tax is a percentage of your income"?

8:04 AM, April 18, 2006  
Blogger tommyspoon said...

1. You failed to mention your desire to increase the amount of the standard deduction in your original post. That's a pretty good carrot, but we can do better for the least of us, can't we?

2. The AMT needs to be seriously revamped or scrapped altogether. Your assertion that the AMT does its job "less efficiently" is too kind IMHO.

3. Yes, the rich will have an easier time paying taxes. They will also be paying more of their fair share. I've got no problem with that and I don't think others will either.

4. I don't think that record-keeping and tax preparation are bad things, but you are free to feel otherwise.

5. I also don't believe that people are ever going to be "happy" about paying taxes (except my Sweetie, but she's just different that way), so I don't think the government should waste its time trying to make people happy about paying taxes. If they can level the playing field a bit, I think that most folks will loathe April 15 a bit less.

P.S. Aren't we both just talking around the Flat Tax that keeps surfacing every once in a while?

8:38 AM, April 18, 2006  
Blogger Alison said...

tommyspoon - You are definitely not talking about a flat tax, which would eliminate the current sliding scale of "if you make $A, you pay X%, but if you make $B, you pay Y%, etc." Flat taxes disproportionately hurt those who earn less, just because 15% of $100 is more likely to put a dent in the daily living expenses of person A than $100 than 15% of $100,000 will to person B. Yes, person B pays more, but person A feels it worse. Hence the current bracketed system.

Thus endeth the one thing I know about tax law and economics. Are you proud of me, Joe?

8:54 AM, April 18, 2006  
Blogger Joe said...

This comment has been removed by a blog administrator.

1:19 PM, April 18, 2006  
Blogger Joe said...

Very good explanation of progressive taxation, Alison! Yes, I'm very proud of you.

Tom's not completely wrong, in that I'm looking for every part of the Flat Tax except the flatness of it. ;-) The Flat Taxers usually agree with my position, except that they also want everyone to pay the same percentage. (And they frequently want to leave in the Mom And Apple Pie deductions.)

I'm in favor of progressive taxation. Let's call my idea the "straight slope" tax... flat, but not horizontal.

Tom, thanks for giving me the opportunity to clarify what I was going to do with the deductions. In rereading, that wasn't clear.

My goal, though, is not to deal with either the richest or the poorest, but just to make an admittedly unpleasant process shorter and simpler, primarily for the middle class.

And yes, we can do more for the neediest.

Through welfare, where it belongs.

1:28 PM, April 18, 2006  
Blogger tommyspoon said...

My goal, though, is not to deal with either the richest or the poorest, but just to make an admittedly unpleasant process shorter and simpler, primarily for the middle class.

So the perception of unfairness doesn't bother you? Particularly among the middle and lower classes?

While I agree with you that the system needs an overhaul, I'm not interested in making the process "shorter and simpler". I want a fairer system for everyone.

1:45 PM, April 18, 2006  
Blogger lemming said...

As my mother so often says, much of life is not fair.

I do think that certain tax breaks are good things, and not that hard to ducument. Being able to deduct something for being a parent, for example, is easy to document. Deducting student loan interest paid makes me feel a little better about writing those checks, and I probably make larger payments as a result, but I wouldn't classify it as either fair or necessary or even right. (I took the deduction anyway.)

2:17 PM, April 18, 2006  
Anonymous Swankette said...


Kindness may be its own reward for charity, but as government monies to non-profits shrink, it's nice to know that there's at least an incentive out there to help replace that money.

(Coming from a non-profit worker, whose agency used to basically be fully funded by government grants and now isn't.)

2:57 PM, April 18, 2006  
Blogger Joe said...

Tom: you know, part of the problem is differing ideas of "fair." So here's a definition of mine: "a tax system in which all taxpayers have equal access to deductions is more fair than one in which deductions are based on knowledge of the tax law, or willingness to hire same."

But I don't think that matches yours...

Lemming and Swankette: I didn't list a single deduction I don't profit from. I claimed them all on my taxes, and I'll cash the check happily. You gotta play to win, as the motto of another great government boondoggle goes.

I've spent almost my entire life (certainly the last 30 years of it) associated with nonprofits of one sort or another. I have faith we'll muddle through somehow.

But since you mention it, Lem, I see no reason at all that anyone who doesn't earn income should get a tax deduction. Populating the frontier is no longer a major governmental concern.

4:50 PM, April 18, 2006  
Blogger tommyspoon said...

Apparently, I've been talking out of my butt on this issue. This conclusion was made by my Sweetie, who has two graduate-level Economics courses under her belt (scoring A's in both thankyaverymuch) whereas I, OTOH, can barely balance my checkbook.

I put our quandry to her and her answer was pretty quick: a progressive or graudated tax is the answer. My idea won't fly because it would encourage people to make less money in order to avoid taxation. (If you're shaking your head at this point like I was last night, just trust the economists on this one. There are plenty of studies to back this assertion up.)

Ok, so now we have a solution. Next step: start bothering your elected officials. I plan on doing that and mentioning that Ipsos poll again and again and again.

Joe, I completely agree with your definition of fairness: ...a tax system in which all taxpayers have equal access to deductions is more fair than one in which deductions are based on knowledge of the tax law, or willingness to hire same. But, according to Sweetie, this is not likely to happen any time soon without completely blowing up the system. The folks with the moneybags are paying their lobbyists and congresscritters boucoup bucks to make sure the status quo is maintained.

10:06 AM, April 19, 2006  
Blogger Joe said...

Oh, no, of course it's not likely. I've just said we should raise taxes on students, homeowners, charitable people, and in the comments, mothers.

(I didn't say it, but that's how it'll come out in the campaign ads. Paid for by H&R Block and Intuit, probably.)

When I tell people I'm against the antitrust exemption and prefer pecan pie, Lou Dobbs' head will probably explode.

5:36 PM, April 19, 2006  
Blogger tommyspoon said...

What's Lou Dobbs got against pecan pie, man?

7:47 PM, April 19, 2006  

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