How Do Taxes Impact Your Personal Finances? You Can Complain!
Taxation WIthout Representation…
There is no better way for someone to get in trouble in this country than to talk about taxes. In 1765, a Boston politician (they had politicians back
then?) named James Otis had no idea what he was starting when he said “Taxation without representation is tyranny.” Almost 250 years later, we still have a feeling of helplessness in controlling our taxes. You can bet that people everywhere have plenty to say about it!
Taxation with representation ain’t so hot either. –Gerald Barzan* (These asterisked quotations are from The Quote Garden, see link below).
With all the recent brouhaha over whether we should increase taxes or print more money, I was keen to discover a website that lists suggestions on tax reform by no one other than people like you and me, good old American citizens. Did you know the IRS actually has a suggestion box? The IRS Taxpayer Advocate, Nina E. Olsen, displays a list of selected comments from a tax reform suggestion box implemented in January 2011. For some time, individuals have been able to contact the taxpayer advocacy service with matters that repeatedly hit our personal finances year after year.
If you make any money, the government shoves you in the creek once a year with it in your pockets, and all that don’t get wet you can keep. –Will Rogers*
Next I took a poll of my friends and business associates. I asked them, if you could change something about the Internal Revenue Service, what would it be? Well, the majority of people gave it just a moment’s thought and then said, “Do away with the IRS.” I could understand where they were coming from, because nobody likes to pay taxes, and nobody likes interacting with the IRS, either.
About five years ago, I had to call the local IRS office—for me, that means the inimitable jewel in the crown of Ohio, Youngstown—a call that I attempted in the middle of my workday. Each time I tried, I was interrupted by actual work responsibilities and had to hang up before I reached a live person. Finally I got away from my desk and tried again. I actually counted 43 prompts before I reached someone who would talk to me. Now, that’s just the worst example I can imagine of customer service, so I sympathize with those who want to “do away” with the IRS.
So, just what types of suggestions are being sent to the IRS? Here are a couple.
“In order to get a lower tax rate, I would be willing to give up all my itemized deductions and take a standard deduction. Also, I would
be willing to give up all my education and 401K and IRA tax breaks if they were included in one overall credit of some lesser amount.”
“Eliminate credits except as necessary. Necessary credits are for education, non-polluting initiatives, donations to nonprofits, and the like…Collect a uniform percent of tax, at least 5 or 6 percent, on internet sales and distribute to the states on a per capita basis. Eliminate or sharply curtail the earned income tax credit. Eliminate the child tax credit…the dependent care credit…any credits or deductions that favor one marital status over another or that favor having children…The kiddie tax should be continued….”
It’s income tax time again, Americans: time to gather up those receipts, get out those tax forms, sharpen up that pencil, and stab yourself in the aorta. ~Dave Barry*
The Taxpayer Advocate really does want to get information to the average citizen. There’s even a Twitter page for the IRS! From that
page, I found a paper titled Most Serious Problems #1, from the Taxpayer Advocate’s Annual 2010 report to Congress. What taxpayers want most, she says, is simplicity. In a ten-year span, 4,428 revisions to the tax code have occurred, with 579 taking place just in 2010. When Ms. Olsen put all the documents of the tax code into a zip file and then downloaded it all into a Word doc, it came to over 11,000 pages with 3.8 million words.
Plus, have you read those little time estimates on instruction booklets, such as “Completing this form will take you 2.3 minutes?” Well, she has finally called this out as the baloney it is—the IRS time estimate for completion of all forms required on average of all individuals comes to 6.1 billion hours, an amount she deems is more likely closer to 7.6 billion hours. Even going by the IRS’s low estimate of 6.1 billion hours, that’s the equivalent of 2.9 million full time equivalents!
Another Taxpayer Suggestion:
“…After taxing the middle class and wealth disparity higher than it’s ever been since 1929, rethinking the paperwork seems like remodeling a burning house…Stop allowing large companies, such as the banks that we ourselves rescued, to operate under offshore shell companies, thus avoiding taxes…I don’t care if you make it easier. Make it equitable…”
President Ronald Reagan made sweeping revisions of the tax code in the mid-1980s. He limited deductions for the costs of state and local taxes, credit card interest, sales taxes and certain exclusions for medical or business expenses. You could still take those deductions but you then became obligated to pay the Alternative Minimum Tax (AMT). Under Reagan’s revisions, families earning as little as $30,000 became subject to this tax.
At that time, I was working for an orthopedic surgeon. I was no longer eligible for tax credits that ensured a tax refund to our household. Conversely, Reagan’s tax breaks for the wealthy reduced my boss’s limit of taxable income from 70% to 28%. The idea behind Reaganomics was that those owning businesses and enjoying new tax breaks would pass their largesse on to their employees, presumably those in lower income classes. However, business owners (including my boss) did not pass on tax breaks or give raises to their employees; they simply took fancier vacations or bought bigger toys. And while Reagan’s revisions had many positive aspects and benefits, its intended effect of trickle-down economics just didn’t work.
More Taxpayer Suggestions:
“Reduce the Alternative Minimum Tax. The goal…was to prevent wealthy individuals from escaping paying income taxes by using deductions, credits, exclusions, and lower capital gains rates and/or loss offsets to significantly reduce or eliminate their income taxes. This same goal is achievable by eliminating or phasing out those deductions [and] exclusions…for the highest income levels. Depending upon the policy goal (for example revenue neutrality or increased revenue), the highest rates could be lowered or remain the same. I have no idea if [Turbo Tax] is computing the AMT correctly….and I am a college graduate with an MA! I would certainly give up the angst of going thru this AMT gyration every year even for a few extra dollars in my tax bill.”
“Remove the AMT immediately. It is outdated and unfairly targets middle class households. Make top earners pay a proportionate amount of income taxes. Bring back deductions for small businesses. Eliminate state and federal sales tax and create a flat VAT tax…It needs to be corrected before the middle class is taxed out of existence.”
A Fateful Promise (Number 41)
President George H.W. Bush fell victim to Reaganomics when he admitted he might need to raise taxes. He was opposed by
Americans for Tax Reform members who (does this sound familiar?) signed a no-new-taxes pledge. His infamous campaign promise—“Read my lips; no new taxes”—came back to haunt him when an increasing deficit necessitated tax increases. He was trapped, with nowhere else in the budget to cut after Reagan’s handiwork.
“Let’s really simplify the tax code by implementing a flat 10 percent tax rate…”
“No more deductions! None, not even the mortgage tax deduction. No deductions for kids or illness or anything. ZERO deductions. Everyone…including corporations…pays a flat 10 percent tax.”
Question: " I understand that Congress is considering a so-called ‘flat’ tax system. How would this work?" Answer: “If Congress were to pass a ‘flat’ tax, you’d simply pay a fixed percentage of your income, and you wouldn’t have to fill out any complicated forms, and there would be no loopholes for politically connected groups, and normal people would actually understand the tax laws, and giant talking broccoli stalks would come around and mow your lawn for free, because Congress is NOT going to pass a flat tax, you pathetic fool.” ~Dave Barry*
The Comeback Kid
When Bill Clinton took office, he agonized whether to cut taxes for the middle class as he had promised or to instead secure the bond market to keep interest rates low and inflation down, thereby reducing the federal deficit. Ultimately he did not decrease taxes on the middle class, but he did raise them for the wealthy, and he also instituted a broader energy tax. His policies reduced the deficit and by the time he left office the country was operating on a budget surplus.
George the Second (Number 43)
Not long after George H. Bush took office, the tragedy of 9/11 had him and many Americans eager to go to war with Iraq—and
anybody else we could strike at for the senseless deaths at the World Trade Center. The cost of the war contributed to the need for more taxes—but Bush didn’t want to raise taxes. He instead passed on certain expenses to states, which raised taxes, and he increased fees for services amounting to $5.9 billion in costs to the American taxpayers.
There may be liberty and justice for all, but there are tax breaks only for some. ~Martin A. Sullivan*
“The mortgage deduction should absolutely be repealed entirely…It is highly regressive, benefiting mainly the wealthy while excluding those with more limited incomes…It artificially raises housing prices, making homes less affordable for new buyers…It promotes debt, rewarding people who lie on their mortgage applications to buy homes they can’t afford…”
“Impose over 2-4 years a gasoline surtax of $2…Coincidentally remove corresponding income taxes…to reduce our $1.2 billion per day purchase of foreign oil…Introduce more “use” taxes—toll roads, national park fees…you pay for it only if you use it…Remove the upper limit on payroll tax and offset with reduced payroll rates for all levels…Reduce corporate tax rates…[close] foreign tax credits…Exempt tax on interest rates…”
“Go to a sales tax system…[except] anyone on welfare…exclude food and utilities from this tax…[which would] include immigrants, drug dealers, etc….Have a two-bracket tax system with no deductions of any kind…Because many people have borrowed to buy a home, I would phase out that deduction over a period of 5 to 10 years…I think the most unfair aspect of our tax system is the multiplicity of deductions.”
If You’re Paying Taxes, You Might As Well Put In Your Two Cents’ Worth
You can take your issues to the Taxpayer Advocate. You can follow the IRS on Twitter. You can rail against or root for whatever debt relief package our legislators come up with in November. But you don’t have to take it sitting down. No matter what else happens, you have to pay taxes—but you can hate it, and you can suggest tax code revisions.
It was as true… as taxes is. And nothing’s truer than them. ~Charles Dickens*
*Famous People’s Quotes from Quotations About Taxes from The Quote Garden: A Harvest of Quotes for Word Lovers, retrieved at http://www.quotegarden.com/taxes.html - guidelines for use (third question)
- Wikimedia Commons, James Otis, Library of Congress
- Flickr, Bill Clinton, by cliff 1066, license
- Wikimedia Commons, George W. Bush, Eric Draper
- Wikimedia Commons, Taxes and Bonds, National Archives and Records Administration
- Screenshot of Taxpayer Advocate Twitter page taken by writer
- Wikimedia Commons, Ronald Reagan, from Office of the President <* Olsen, Nina, Taxpayer Advocate. The Time for Tax Reform is Now. Most Serious Problem #1, Annual Report to Congress 2010, retrieved at http://www.taxpayeradvocate.irs.gov/files/MSP1_Tax%20Reform.pdf
- Eaton, William. LA Times. By GOP Standards, Bush Raised Taxes 178 Times, Say Democrats. Retrieved at http://articles.latimes.com/1992-09-16/news/mn-943_1_tax-increases
- Thurber, James. Rivals for Power: Presidential-Congressinal Relations (Washington CQ Press, 1996), pp. 170-190, retrieved at http://gunston.gmu.edu/pfiffner/index_files/Page1155.htm
- Niskanen, William. The Library of Economics and Liberty. Reaganomics, retrieved at http://www.econlib.org/library/Enc1/Reaganomics.html
- NY Times, Alternative Minimum Tax, Updated December 7, 2010.http://topics.nytimes.com/top/reference/timestopics/subjects/a/alternative_minimum_tax/index.html