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March 30, 2012
Although I usually wait until the very last minute to do my tax returns, I finished them off early this year. That’s more a commentary on the ski conditions than any sort of diligence on my part. It was too windy for a bike ride and too weird to ski, and so the alternatives were cleaning the house or doing the taxes. But somehow, on this eve of April Fool’s Day, completing my taxes seemed appropriate.
For the most part, my taxes are pretty simple. The information mostly just downloads automatically from the banks and stock brokerage into the tax preparation software. There are a few additional income things I need to deal with, and the usual assortment of deductions. But through the year I keep decent records, and so there isn’t a whole lot that needs to be excavated from envelopes full of receipts. The software really makes it a simple process.
The contrast with the dark ages, when all of this was hand-entry and the computations were made on a pocket calculator, couldn’t be more stark. Instead of trying to discern some meaning from the incredibly opaque instructions in a variety of booklets that come with different forms, it’s just entering the stuff once, mash the key, and the software produces the return and tells me how much to write the check for. It truly is amazing. It used to take several days and a whole bottle of whiskey.
Despite a very simple financial life, my return still ran something over 60 pages in length, and I’m not sure why. When a dollar of income lands in my checking account, it spends exactly like any other dollar that lands in there. But in its infinite wisdom (and corruption), Congress has determined that there are more flavors of income than Baskin-Robbins has ice cream. There’s regular income, dividends, qualified dividends, interest, municipal-bond interest, special-purpose-bond interest, partnership income, earned income, and who knows how many other options out there. Each one gets a special set of rules and special set of forms.
Most importantly, each flavor of income gets its own special rate. Municipal-bond interest is exempt. Qualified dividends are at 10 percent or 15 percent depending on your other income. All the special rates are discounts from the alleged rate we pay. The only kind of income that doesn’t get any favors is regular income, the kind that most people have. Not only is regular income taxed at the highest of the various rates, but it is also subject to FICA the deductions on your check for Social Security and Medicare.
The obvious conclusion is that people who make their income from actual jobs have crappy lobbyists, while people who make their income from investments or trading pieces of paper around get special rates. Because they have special access to Congress. You might want to remember the complexity of the tax code when considering whether to re-elect Senator Hatch and Congressman Bishop. They’ve both been in Congress long enough that some of this corruption is their doing.
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When it was all fed into the computer, and I pushed the launch key, the result was shocking. When I look at the total I owe, I’m outraged. The outrage is not because I’m paying so much. I’m outraged because, without really trying to develop a tax-reduction strategy to my retirement savings, I pay next to nothing in federal income tax. When I take the total income that rattled into my account over the past year, ignoring the various flavors available, and compare it to the actual tax I have to pay well, it’s really ridiculous. It’s barely 5 percent. Somebody with an identical income, derived from other sources, would pay 3 or 4 times that much.
Much has been made of Mitt Romney paying only 15 percent on his multi-million-dollar annual income. All I can say is that Mitt needs to buy a different version of Turbo Tax or get a different accountant.
While I’m not going to write an extra check to pay more, the fact is that I should be paying more. The country is in hock up to its eyebrows, and needs to be raising revenue. I’m getting the full range of services provided by the federal government; national defense, safe air travel, clean air and water, highway maintenance, somewhat ineffective bank and financial regulation, the national parks, a safer car than was the case when safety was left to the automakers, and on and on. I don’t have to test toys I buy for lead. Criminals are arrested and put away. Old people (who don’t seem so old anymore) have enough income that they aren’t eating cat food to stay alive.
The tax code is an obscenity.
Tom Clyde practiced law in Park City for many years. He lives on a working ranch in Woodland and has been writing this column for 25 years.