WASHINGTON, April 18, 2017 — Due to Wall Street’s Good Friday/Easter weekend break plus the District of Columbia’s unique “Emancipation Day” holiday on Monday, Americans were given three extra days to get their tax returns into the IRS. So, today, April 18, 2017, is Tax Day.
After spending considerable time, effort and money to complete your return (assuming you’ve already done so), how do you feel about the amount of tax dollars that you paid to the Federal government in 2016—after somehow figuring out exactly what that figure should be?
The IRS claims the average person spends 8 hours and $120 for each non-business return filed. Since there are about 180 million annual returns filed, the cost of completing all the appropriate IRS forms totaled almost $22 billion. In addition, the time spent on tax preparation totals nearly 1.5 billion man-hours.
Even after that often-cruel experience, many of us feel a bit squeamish, because we hope that whomever or whatever helped us file fully understood the 70,000-page tax code, was able to take every possible deduction and didn’t take any deductions that we may not actually have been entitled to take. Even the threat of an audit by the IRS leaves most of us very squeamish.
Then there is the amount of taxes that we actually paid to Uncle Sam. We often calculate the actual rate we are paying, based on some immensely complicated methodology that figures out exactly how much of our income is taxable after considering every possible exemption, deduction and credit to which we may be entitled.
Nearly half of all U.S. income earners pay little or no Federal income taxes. As for the other half, the rate increases as their income increases, meaning the highest income earners pay the highest rates.
For most taxpayers, the amount of tax dollars paid always seems to be very large. This is especially true when we consider that in addition to the Federal income tax, we also pay thousands in Social Security Tax along with the Medicare tax, state income tax (for most filers), property taxes, sales taxes on most purchases in most states and special taxes on consumables like gasoline, alcohol and tobacco products.
For these reasons and many others, it seems reasonable for us to ask that when our leaders come up with tax reforms, they seriously consider vastly simplifying the filing process to eliminate all the lost time, effort and money spent just completing the Federal income tax forms on a timely basis. And in so doing, why not make it simple enough that we can figure our taxes out without the help of an expensive preparer or an expensive softwar program.
We understand that any new system must still raise enough tax revenue to pay for our government’s expenses. But at the same time, we all demand that any new system be fair and equitable, even though there are differences of opinion as to exactly what is fair and equitable.
There is consensus on at least one point: namely that the amount of taxes paid should increase as an individual’s income increases. In other words, those that earn more should pay more. The biggest difference of opinion, however, is whether the tax burden should increase proportionately or disproportionately as income increase.
Some take the progressive view, arguing that the tax rate should be higher for the higher income earners. For example, if an individual pays $10,000 tax on the first $100,000 he or she earns, that individual would then pay a $20,000 tax on the next $100,000 earned, a $30,000 in tax on the next $100,000 and $40,000 tax on the next $100,000.
The other view is that a person should pay $15,000 in tax on every $100,000 he or she earns, so that the tax dollars paid increase proportionately, not disproportionately against increasing income.
Congress will have a difficult time reaching achieving a majority consensus on this menu item. As such, tax reform may not be accomplished this year. Many members of Congress say tax reform is too complicated and cannot be done all at once. “It will take many bits of the apple.”
As we have pointed out many times in this column, there is only one tax system that meets all the goals under consideration:
A 15% single rate tax on all income above a livable minimum (twice the poverty level) with no deductions for anything. All income is taxed the same whether derived from wages, salaries, rents, interest, profits, dividends or capital gains. The corporate tax rate is also set at 15%.
Aside from raising sufficient revenue in an equitable (arguably) manner, all Americans would feel much better on Tax Day if we adopted this single-rate system. All year long, we would know exactly how much Federal income tax we would have to pay. There would be no anxiety on April 15th. Perhaps best of all, we would also have an extra 8 hours of leisure and an extra $120 in our pockets each year.
Doesn’t that seem like a good idea?