We have complicated taxes. Really. If it weren’t for our rentable basement, we’d have simple taxes, but because of the rental, we have complicated taxes.
For the last two years, I’ve gone to H&R Block to do my taxes. They do a great job; the only catch is that I have to leave my leg behind. Or an arm. Last year, they charged me $343 to do my taxes, and the person preparing them spent a good hour with support people to figure out how to do it all. I decided if HR Block required help, I might as well try it one my own this year using TaxAct software.
Long story short: after spending nearly two hours battling my way through page after page of information, I realized I was hopelessly lost and drowning. And it’s not that TaxAct failed me. Oh no. No, it was the absolute complexity of figuring out depreciation on the rental unit downstairs. See, what I can’t figure out is how we get XX in income off the basement but only count 25% of that toward taxes. At least that is what HR Block has done the last two years. It has to do with the depreciation of the rental, but for us, the difference between XX and 25% of XX means more than $1,000 on our refund.
And that’s worth paying $343 to HR Block to do my taxes.
But here’s my real problem: Why is the tax system so blasted hard anyway? I should be able to do it all on my own, and truth be told, if we didn’t have the rental, I could. I can see why some of the alternate tax systems out there, like the flat tax, are attractive.
My personal favorite, even though I know it would never fly, is the Sales Tax method. The basic idea is that ALL taxes are done away with (that’d be nice). In their place, we institute a sales tax on all purchases of, for this example, say, 25%. So if you buy $1 worth of something, you pay $1.25. Most people cringe when they hear that, but remember, you aren’t paying ANY other taxes. None. Just 25% of whatever you buy.
The main advantages I see with this is that it removes the sheltering options and complexity of the tax system. It also encourages saving and investment. If you don’t want to pay taxes, don’t spend your money. Simple as that.
The main disadvantages are the immediate black market for under-the-table goods and, of course, a disparity in what is paid by poor vs. rich. While no one portion of society would pay more or less than 25% on purchases made, your effective tax rate would likely be lower as you became richer. For example, if you make $1,000 and spend it, you paid $250 in taxes. If you make $10,000 and spend $1,000, you still paid $250 in taxes which, in this example, is a tenth the total tax burden of the first person. The proposals I’ve seen tend to propose income reporting and a straightforward refund for incomes below certain levels. That would help balance the effective tax rates, but it is not a perfect solution.
But personally, the single best thing that could happen to my taxes today would be for this government to get a grip on spending. I have trouble seeing why failing companies needs $800+ billion of my money to support their own failed policies. Instead of giving these companies $800+ billion dollars on top of the hundreds of billions already given out, why not divy that grand total among all Americans. We’ll spend our money at the businesses we support and want to see survive. Let’s see…. $800 billion divided by 300 million people…. That’s a check for $2,666.67 for each person in your house…. Yep, that’d solve it for me.
Of course, giving that kind of cash to most Americans would probably mean that the the jumbo TV industry would become the largest industry in the United States. Me? I’d pay off the car and save the rest.
This has been one of my more unusual ramblings….