Annual tax rant
Tax returns are due on Monday. I’m not sure why the deadline was slipped ahead through the weekend, but it has something to do with a holiday in Washington, D.C. If there’s anything our hard-working members of Congress need, it’s another holiday. They have been known to show up for work 3 days in a row sometimes, before taking a month off to raise campaign funds from people who need favors slipped into the tax code.
After years of dealing with the complexity of filling out the stack of forms, and then paying an accountant to do it for me, I gave up and started using tax preparation software. It makes it remarkably easy. My life is not so complicated that I need a lot of guidance on stuff. Most of the information downloads from third parties and lands on the appropriate form with a couple of mouse clicks.
While that makes the process easy for me, I’m not sure that’s good. The ease of filling out an automated return hides the mind-boggling absurdity of the tax code. When the software magically sorts the income into appropriate categories, I’m not forced to do it myself. So I never have to consider why the dividend paid from Acme Company is taxed at 15 percent and the dividend paid from Amalgamated General is taxed at 30 percent. When those dollars land in my checking account, they spend exactly the same. But Congress has decided they are entirely different for tax purposes. Without TurboTax, I suspect there would be rioting in the streets and demands for simplification.
Interest on home mortgages is deductible. Interest on a car loan is not. The federal treasury subsidizes home ownership, but not renting. For years car loan interest was deductible. Then it wasn’t, unless you pay for the car with a home equity loan, then it might be. None of it makes sense. The real estate and banking industries have better lobbyists, and we are all receiving "mortgage stamps" to help subsidize our houses. Screw the renters. Some of the preferences built into the tax code may be entirely legitimate. Others seem completely unreasonable, and exist only because somebody bought a congressman and got special favors slipped into the code. They stay through inertia, or get expanded in response to somebody arguing that special treatment for them is good for everybody.
In the end, the tax code is a cynical and corrupt document. Without really trying to minimize taxes, my tax bill is almost irrelevant in the annual budget. I live pretty comfortably and pay next to nothing in taxes. The rest of you are carrying me, and while I appreciate it, it’s not fair. Somebody with an identical amount of money landing in their checking account, but who got that money as wages, would pay several times what I do in taxes. I’m not willing to throw in extra just from the goodness of my heart, but the current state of affairs is grossly unfair.
The tax return process seems kind of backward. Everything on my return was already reported to the IRS before I filed. They know what I made and where I made it before I do. So they could crunch the numbers themselves and just send me a bill. The few items that aren’t reported automatically could be added or subtracted, and it’s done. For probably 90 percent of the population, the IRS has all the information about your return before you do, and there really isn’t anything left to adjust. But we cling to the process of filing the returns. Its only real function is triggering a frustrating correction process if the bank reported $37.49 in interest, and you write it down as $37.94 on your return.
One of the companies whose dividends get the discounted tax rate is General Electric. I own a little stock there. The annual report shows that the CEO of General Electric, Jeff Immelt, made $32 million last year. It came in cash, stock options, stock, and perks like an annual physical exam. Apparently he doesn’t have Obamacare. That works out to about $2.5 million a month. Immelt is a pretty well regarded corporate manager. Unlike members of Congress, he actually shows up for work. Which makes it awfully difficult to imagine how he could blow through $2.5 million a month. Even if the heated driveway on his vacation home is a mile long, it’s hard to see where that kind of cash could go, month after month.
I don’t know what his effective tax rate is. The highest federal rate is 39%, but almost nobody actually pays that. That’s why they have accountants. As Warren Buffet frequently points out, his net tax rate is lower than his secretary’s. But his secretary has a lousy lobbyist.
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.
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