Tom Clyde: Annual tax rant
April 4, 2014
It’s that magical time of year when we are all getting our tax returns finished off. Whether you hire an accountant, use tax preparation software, or do it the old way with a pencil and abacus, it is one of the unifying rituals of American society. Of course, it’s not a universal observance. The latest statistics I could find show that the percentage of Americans who pay no federal income tax is now 43 percent, down some from Mitt Romney’s famous 47 percent. Even assuming that includes a lot of lazy, but able-bodied, toddlers who refuse to get jobs, that seems like a high percentage of people not paying income tax. But anybody near the median income who has a mortgage and a pile of kids will be paying little or no income tax.
They are paying plenty in FICA withholding for Social Security and Medicare, but with the exemptions, credits, and so on, there are just a whole lot of people who are not making enough that they get taxed. I’m not sure that’s a good idea.
Of course, one doesn’t need to be poor to avoid paying taxes. It will probably make signing that check more pleasant if you keep in mind that you are surely paying more income tax than General Electric, Boeing, and Verizon. Combined. Those three corporations paid no federal income tax at all between 2008 and 2012. They paid plenty in dividends, so they are generating some cash. But through the wonder of our corrupt tax code, they have managed to avoid paying any income taxes. For years.
It was in the news this week that Caterpillar has also managed to avoid a couple of Billion (with a B) in federal taxes by cashing the checks for construction equipment in Switzerland instead of in Peoria, Ill. The big corporations have whole office towers full of people who spend their lives combing through the tax code looking for legal ways to dodge taxes. What they can’t find in the code, their lobbyists purchase in Congress. These same employees are paying more tax individually than the corporations they are working for.
I don’t have a stable of bean counters working for me. I buy Turbo Tax every year and let their accountants do the hard part. Mostly I download it from the brokerages where my retirement savings are parked. The end result is that I pay a ridiculously low amount in federal income tax. That’s without really trying to plan for a low-tax approach. There is some municipal bond income, a bunch of dividend-paying stocks in the tax-dodgers like Verizon. Their dividends are magic, because for some reason Congress has said they are only taxable at 15 percent even though the normal tax rate is more than double that. And if your taxable income is low enough, the magic dividends are only taxed at 10 percent.
A little of this, a little of that, deductions for a health savings account (the only benefit to lousy individual health insurance), and so on, and the end result is that my taxable income is practically nothing. I’m not really complaining, and am not about to send the IRS any more than the software says I have to. But the system is an outrage and terribly unfair. The concept of paying for services received shouldn’t be foreign to the tax code.
Family members with almost identical incomes are paying three or four times the income tax I do. That’s because they get their income as salary, and the tax code punishes them for that. They get to pay FICA in addition to income tax on wage income that doesn’t qualify for any special favors. All men are created equal, but all dollars are not. If you get your’s the old fashioned way, by working for it, well, the tax code wants a third of it.
On the other hand, if you get your income in a more honorable way, such as dividend checks that get deposited directly so you are spared even the labor of endorsing the check and getting it to the bank, well that’s different.
The tax code doesn’t exist in isolation. Every word in it was bought and paid for in Congress. Every two years, the American people get the chance to do something about our corrupt tax code. And every two years, we inexplicably return about 95 percent of the people who authored this corruption to office. The only real turnover in Congress results from death, not elections.
So while you are working on your taxes, ponder the unfairness of a system that has you paying more income tax than General Electric, and has two families with identical incomes paying vastly dissimilar rates of tax. And keep Congressman Rob Bishop in your hearts and minds come November.
Tom Clyde practiced law in Park City for many years. He lives on a working ranch in Woodland and has been writing this column since 1986.