Hyperpat\’s HyperDay

SF, science, and daily living

The Tax Monster

Posted by hyperpat on March 26, 2007

I filled out my tax returns for this year this last weekend. Total working time to do all of this was just about 12 hours, and I filled out the 1040, schedules A, B, D, plus my state return. Now admittedly this was a more complex tax return than most people have, but this still seems like an inordinate amount of time to determine what should be fairly straightforward: How much did I make, and what’s the tax on that amount.

Instead of something simple like the above, I have to calculate what part of my income is taxed at differing rates (things like qualified dividends and long-term capital investments), determine what deductions I can take (and if they are limited due to making X dollars too many – differing max amounts for different categories of deductions), write down information that the government already has, and then on top of all this I have to go back and re-calculate the whole mess a second time to determine if I’m subject to the Alternative Minimum Tax (twice! once for Federal, once for State) . Now all of this takes not only time to put all the entries down, but quite a bit of time reading the gobbledy-gook that passes for instructions that the government provides (this was especially true for the entries on Schedule D, where someone seems to think that anyone who trades stocks will be intimately familiar with what 1256 contracts, puts and straddles, futures contracts, wash sales, and other such things are). Plus there’s all these mini-calculation forms buried in the instruction book that you have to figure out, even though you don’t have to submit these items – what happens at audit time, where you have to justify all your numbers, and you didn’t so happen to save a copy of these interim internal forms? (and there’s no warning in the book that you should save this information).

On top of this, it’s very clear that the Alternative Minimum Tax is badly broken. Intended to make those making very large amounts of money pay at least some amount of tax regardless of how many tax shelters these people have (and the existence of those tax shelters is something else that needs fixing), it has now morphed into a giant patch of quicksand, catching something like twenty percent of all taxpayers in its clutches, as it has not been indexed to account for inflation (to put it on the same basis it had when it was first enacted, everyone with incomes below $500,000 should be exempted).

Now I could have gone to a tax-preparer, but at a cost of $400+ for a return like mine, I ask, why should I be placed in this position – either having to give myself a massive headache or cough up a pretty large amount of money just for the privilege of handing even more money to the government? The current tax-code is a massive hodge-podge of this and that special cases, enacted over many years in response to lobbying by all sorts of special interest groups and individuals, and is so chock full of loopholes, special handling, and patches to patches that even the IRS cannot give you a straight answer to all too many questions about how to properly fill out your return.

Now there have been occasional attempts to throw all this mess out and go with a straight percentage tax, or sometimes this is tried as an indexed percentage, but every time it’s suggested, all those whose ox would be gored by such a change set up such a massive howl that the concept is almost immediately dropped. But somehow the current situation cannot be allowed to continue, as it’s getting worse every year. I therefore propose a compromise:

As long as the tax code is going to be used as an instrument of social engineering, encouraging some behaviors (such as house-buying) and discouraging others (short-term stock market trading), why not lay out a document that exactly describes these goals in clear English? State exactly what the goal is, who and how someone would qualify to get whatever tax benefit is proposed, when the provisions in the code that work towards that goal would be repealed when the goal is met (if ever), what indexing should apply so the code remains current in terms of future dollar buying power, and how and when the code should be modified. Once this document is created, present it to the entire country as a proposed Constitutional amendment, and let everyone vote on it, with a vote on each major provision of the document, with only those portions that get the full 2/3 ‘yes’ vote actually becoming part of the final amendment. Maybe then we’ll get something that can be filled out in fifteen minutes, except for those very few people who have really complicated income streams and investments.

One Response to “The Tax Monster”

  1. Appreciating the dedication you put into your blog and detailed information you present. It’s good to come across a blog every once in a while that isn’t the same unwanted rehashed information. Fantastic read! I’ve saved your site and I’m adding your RSS feeds to my Google account.

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