Wednesday, April 14, 2010

A Rant for Tax Day

Soon, yet another April 15th will be upon us; while many people will be complacent regarding the matter, there is a rising tide of disgust and disillusion as well. It is on this date that your taxes are due, when the culmination of frantic searches meshes with the obscenity of the amount of time spent navigating the morass that is our tax code.

It wasn’t always like this; up until 1913, the federal government made enough from tariffs and such to run in a reasonable manner (minus the tax imposed during the Civil War), but all of that changed with the passage of Amendment XVI. While the amendment had many who supported it (the amount of wealth the robber barons amassed was considerable.), there were near as many who stated that this was a bad idea. THe tax rate wasn’t even that high at the start; most people paid one percent of their income. By 1919 though, this one percent had jumped to six percent while the top tax tier now stood at seventy seven percent. In order to further conceal the amount of tax the people were paying, withholding came to be at around the time of WWII. Needless to say, income tax assessments became a prized political football as it was kicked around and manipulated by the politicians for votes. With the creation of Social Security courtesy of FDR, another item was withheld from the paychecks of the workers.

In this present day, this income tax has become pervasive and deliberately more complex; it is of course designed to ensnare as many people as possible in its net to create the most possible revenue, but somewhere during this process, it became onerous and it nearly has a life of its own. At the time it was created, taxing capital and labor seemed to be the right idea; after all, most of the capital was held by the very rich and the middle class had yet to emerge from under the shadow of Laissez-Faire capitalism, but that was then while this is now.

When one studies the matter in its entirety, only one rational conclusion can be reached: taxing capital and labor is plain stupid. With the convoluted tax code that we have, there are countless methods of legitimate cheating to either pay a reduced tax on your capital or exempt it from tax in its entirety. OFCs (Offshore Financial Corporations) are but one of the myriad ways to do so. Only the rich really have access to such vehicles as this, so if the tax burden on the rich is increased, this simply means that more capital will be sheltered outside of the USA, benefiting only the one holding the wealth. This is not even taking into account Social Security (which is also taken from capital and labor). At some point, the payins for Social Security will be less then the outlays, requiring either an increase in the tax or the cutting of benefits. If the rich avoid paying their taxes (by the way, they already pay their fair share of them), who pays them? The middle class does since they do not have the capability of hiding their money.

I used to be able to do my taxes with a pencil and a scratch sheet, but apparently that is no longer the case. Even at my income level, there are at least seventeen ways I can deduct from the bottom line, reducing my tax burden. How could things have become tso complicated? It largely has to do with Congress. As I mentioned earlier, the income tax rate is a prime political football; it is raised and lowered at various times depending on the state of the economy. The Congress makes the tax code deliberately confusing so that jobs are created in that sector as well. With the advent of withholding, it makes it far easier for Congress to hide their actual spending too. Ca we really expect any sort of meaningful reform when such is in the hands of those who benefit from the current system? If you think so, then I have some desert land in Florida for sale.

As I stated before, taxing capital and labor might have been a good idea back in 1913, but it is a stupid idea in the present day. The only result of this is that capital and labor will flee this country, putting a heavier and heavier tax burden on those gainfully employed. It makes more sense at this time to tax consumption instead. The costs of tax compliance are already built in to the products we buy; a one dollar loaf of bread has around twenty three cents of tax built into the price. Under the FairTax, that twenty three cents would become a consumption tax for that item. By issuing a prebate check every month that covers the tax up to the poverty level, millions of people would become untaxed. There would be no more 1040 crap along with its associated headaches

The FairTax would make the tax stream far more transparent not only because a lot less people would be paying it, but its sources could be far easily tracked. The current process of withholding once more works to the advantage of the Congress.

Another aspect of this which many will disagree with is that no matter how onerous the tax burden becomes, the rich will always become richer. In the process of the aforementioned, it is the less well to do that pays the price.

This concludes my rant for April 15th; I suppose that I will have to put my pencils and scratch paper away, because there will probably be even more convoluted deductions for next year.