Get your taxes done? Think about what you went through not only to earn the money needed to pay Uncle Sam, but also the work and time you spent getting your return to the IRS.
April 23 is Tax Freedom Day, when the nation has theoretically earned enough to pay its taxes. Until then, we’re working for Washington, D.C. Only after nearly four months into the year do we begin working for ourselves and spending our money as we want to spend it.
Another tax burden also bends our backs: compliance.
Compliance means the time and money required to complete forms, collect and organize receipts, figure out tax rules and pay tax preparers. That is time taken out of our lives and time lost from adding to the wealth and quality of life in this country.
The IRS estimates even the most basic return requires more than 12 hours to plan, document and complete. Self-employed and small business returns on average cut more than a week of productive time out of each year. That drag on our economy translates into jobs not created and a competitive disadvantage with nations that have more efficient ways of collecting taxes.
Over an average lifetime, some Americans can spend a year or more just complying with the rules and paperwork requirements to pay their taxes before sending even one dollar to the IRS.
The burdens of tax compliance were driven home to me by a family crisis. We had to move an ailing aunt and uncle into assisted living. Our uncle, a proud WWII veteran, had always managed his and his wife's finances and done their taxes. His aging mind could no longer keep up with the paperwork demands and complex forms and rules of the IRS.
He fought for this country. But he lived in fear of his own government, fear that the IRS might put his life under a microscope because he added some numbers incorrectly.
I got the job of cleaning his cluttered desk. I found wads of receipts bound in rubber bands or crammed into envelopes, calculations scribbled on stacks of index cards, and notebooks of expenses and income records spanning decades. Living on a modest income, every penny saved mattered to our uncle, and he preserved every scrap of paper that could help him through the IRS labyrinth between him and a lower tax bill. He fought for this country. But he lived in fear of his own government, fear that the IRS might put his life under a microscope because he added some numbers incorrectly or lost slips of paper needed to prove he deserved another $5 or $10 off his taxes.
There must be a better way. Maybe there is.
It’s called the Fair Tax. It would replace all federal income- and payroll-based taxes with a national retail sales tax. Retail businesses would collect the tax, just as 45 state systems do already. Retailers would send it to the state taxing authority, which would then forward the tax to the federal government. Americans would no longer shut down their lives to complete yearly tax returns.
The Fair Tax rate would be a 23 percent levy collected only at the final point of purchase of new goods and services for personal consumption. We’re already paying at least that rate when you consider all the convoluted ways our incomes are taxed. With the Fair Tax, we’d know exactly what we’re paying.
The Fair Tax would close the evasion gap created by criminal nonpayment and skillful manipulation of the 67,204-page tax code. Honest taxpayers pay more because our income tax system makes us cover the shortfall from those who don’t pay what they truly owe.
According to the Tax Foundation, in 2005 Americans spent about six billion hours complying with the income tax code at an estimated cost of more than $265 billion. That amounts to a 22.2-cent tax compliance surcharge for every dollar the income tax system collects. That compliance burden represents a workforce of more than 2,884,000 producing nothing but completed tax returns and supporting documentation.
The Fair Tax isn’t vulnerable to charges it hammers the poor. A “prebate” would shelter purchases of basic necessities for Americans below poverty levels and correct the regressive compliance costs of the income tax system. Taxpayers with incomes under $20,000 suffer compliance costs at a percentage of income 11 times higher than those earning above $200,000. And consider this: No less than 72 percent of the working poor pay preparers to claim the Earned Income Tax Credit. No wonder. The instructions for this credit are 55 pages long. In 1999, $1.9 billion from credit intended to help the working poor went instead to tax preparers.
After you're done, yet again, spending time and money doing your taxes, click onto www.fairtax.org. Learn more about a smarter way to fund our government.
The opinions expressed are solely those of the author. E-mail firstname.lastname@example.org.