by Yesterday was Drop Dead Day
for paying your taxes in America, but taxes are a worldwide phenomenon that cannot be resisted or denied if you are an active participant in society.
I’m always amazed by the people who purposefully overpay during the year and use the IRS as a savings account and then “get surprised” when they get a big refund each year. How did you do this year?
Did you pay in or get back?
Do you know people who refuse to file taxes?
Do you pay any state tax?
Do you pay a local or city tax?
Do you feel you’re getting value out what you pay in?
If yes, why? If not, why not?
Are taxes a worthwhile effort or do you think the current system of
taxation — wherever you live in the world — needs to be re-thought
and re-examined for efficacy?
Have you ever been audited? If yes, how did you do?
If you have not been audited — there’s hope for you yet:
Middle-class Americans, listen up: the I.R.S. is much more
likely to audit you this year. Those caught cheating can expect to pay
about $4,100 more on average in income taxes.
Since 2000, authorities at the Internal Revenue Service
have nearly tripled audits of tax returns filed by people making
$25,000 to $100,000 as part of a broad change in audit strategy….Chris Edwards, director of tax policy at the Cato Institute, a
libertarian research and advocacy group in Washington, said that
Congress is driving the need for more audits. Since 1995, he said, “the
Republicans greatly complexified the tax code, contributing to tax evasion and making the I.R.S.’s job more difficult.”
Do you think a Flat Tax would be better than an income-variable/deductions system of taxation or do prefer the status quo?
Not sure you could have picked a tougher question actually – there are so many factors to take into account.
First of all, I’m British but live and pay taxes in Sweden, although the principle is the same everywhere – just the percentages differ.
From your multiple choice question I’d prefer a flat rate. Not only is it fairer I believe there would be less tax avoidance. Tax returns would be easier to fill in. Auditing would be simpler and cost less, saving a reasonable amount of money within the tax office.
Personally though I’d prefer a system of taxation based on a goods and services tax (GST / VAT – not sure what you call it in the states).
Above all I’d like to see an end to any form of wealth tax, inheritance tax, capital gains tax – any form of double taxation which punishes the taxpayer for investing wisely.
Hi Mike!
Thanks for providing some keen and unique insight into this matter of taxation.
Taxes are a fact of our integrated lives and discussing the how and the why of paying for what we need to build a society is important.
Does Sweden have a better/fairer tax system than the UK? Do you feel your funds are being appropriately and wisely used — or is there a lot of squandering of public funds?
I, too, prefer a Flat Tax. It’s much fairer without a lot of “gotchas” — but then again the “gotchas” are where the big money can be made by the government in accessing penalties as the story I quote states. $4,000.00 USD is the average “penalty” each audited person is required to pay. I don’t think there’s any such thing as a perfect tax return so the “gotcha” factor is quite alive and dangerous and viable.
VAT — paying as you purchase — is also an idea I like quite a lot. If you can afford to buy, you can afford to pay the tax.
Hello!
VAT is a good system, the main argument against it is that people all pay the same, regardless of “ability to pay”. So VAT on luxury goods is usually fine with most people, but what about VAT on books? Or clothes? Or fuel (for heating, for driving)?
Living in France I pay quite a lot of taxes; both as I earn and then in one lump sum at the end of each year. I’d prefer to have it like in the UK where I lived before: P.A.Y.E. (Pay As You Earn). If you’re salaried with no additional income, you never have to worry about the taxman. Any other income like bank interest can be automatically paid too, simply by knowing your “tax code”. Self employed and people who have lots of other income are the only ones who have to worry, and they can usually afford (or are legally obliged, in the case of the self employed) to have an accountant.
Tax form filling is complex and some studies seem to suggest it costs the state here in France almost as much to claim tax (printing and sending forms, manually processing returns, auditing, etc.) from people – even those who are totally honest – as the revenue raised. It is often an unnecessarily complicated business.
-Fruey
fruey —
I agree the “pay as you earn” route is the simplest and fairest method of taxation — I wonder why states and nations that have complicated tax codes prefer that sort of ongoing mass confusion to a simple “we’ll take this piece, please” method of supporting society?
What’s the pull for complication over simplicity?
Actually, David, this year the deadline to file taxes with the IRS is tomorrow, the 17th. The 15th was a Sunday, and today is Emancipation Day in the District of Columbia, which is a holiday in DC.
I filed my joint return in February. I got a small refund from the IRS, but a withholding error with my wife’s company gave us a big tax bill in Virginia.
I’m in favor of a simpler tax code that cuts down on the many loopholes in existence. I’m not sure if the flat tax would be the perfect solution, though.
Hi Manny!
You’re absolutely right about the taxes not officially being due yet. I discovered my error after I posted the article and I thought I’d wait to see how fast a reader caught me. You win!
I, too, filed everything in February. I like to get the tax situation off the table ASAP.
Yikes! I hate it when processing errors result in big tax bills. That usually happens when someone switches jobs or changes the withholding status. I hope you didn’t get bitten too much.
Why don’t you think a flat tax is a perfect solution? What’s missing in that idea?
David,
You ask “What’s the pull for complication over simplicity?” but I think any election campaign shows why taxes are so complicated: it’s a way to make promises to special groups, and create more laws and rules to keep having things to talk about to your electors.
Less tax for the elderly, less tax for people with ecological homes, more tax for the rich, more tax for the well-off, rebates for this, rebates for that… it all adds up to a lot of complexity!
Don’t let’s get started on corporate taxes… another minefield of how to hide favours to your cronies via clever taxation deals.
-Fruey
That makes sense, fruey, and I guess there’s also an embedded strata of economical factors in law offices and tax preparation services and accountants and the like where everyone would be out of a job if we made taxes fairer and less complicated.
The problem with our current taxation scheme is even the best tax people/professionals can misinterpret the code and that leads to more investigations, trials, penalties and audits — making sure the power structure is enforced and codified and kept in the loop of lucrative service.
Hi David
Sweden has one of the highest tax rates in the world at the moment, although the situation is about to improve as there has just been a change in government. Wealth tax is due to be abolished at the end of the year. Inheritance tax also went a few years ago (I believe a few countries have done away with this one, Canada included).
The Swedish system is also renowned for looking after its citizens with government paid maternity / paternity leave, a good health system, subsidised child care. However one of the criticisms I have heard, from Americans in particular, is that on a US tax rate they could pay for all those things themselves and still have more left at the end of the day.
Of course the cynic in me assumes anything child related gets subsidised to encourage population growth and boost the economy that way (Sweden currently only has about 9 million people).
So do they spend it wisely here? In general, yes, but I’m sure there’s room for improvement. In the businesses I work with the “management consultancy” culture has take over the last few years and there are massive inefficiencies. I don’t know whether this extends to the governent as well.
//Mike
Thanks for the fascinating insight into Swedish tax culture, Mike!
Our American tax system also gives gigantic breaks to those who have children and who own homes. Both of those “things” ensure a propagation of community and a future tax base to enhance both local and federal coffers.
If you’re single, or married without children, you pay a huge tax burden with no way of accessing the built-in automatic deductions available to the standard, mainstream, American family.
I’ve heard that argument before — “I can get it cheaper myself than having it taken from me to cover the cost” — but the problem is people prefer to keep what is theirs to feed their most immediate interests and they don’t want to worry about what might happen in the long term, while the who reason for being of a nation state is to predict unfortunate happenings and cruel futures.
I think it’s better to take the money now and pay for the programs now than to let people keep the money and hope they’ll be wise beyond themselves for investment.
On the plus side, thanks to Emancipation Day and the 15th being a Sunday, we have until the 17th to file this year.
On the minus side, I just found out that filing for an extension only extends the time you have to file… but not the time you have to pay the taxes you owe!
This year I have been waiting for a friend of mine to pay me back some money he owed me. Naturally he kept on telling me he is waiting to be paid for something and so now I get the pleasure of paying interest and late fees on top of my taxes. Hooray!
I’m not sure if I’d prefer a flat tax. I have thousands of dollars of legitimate business expenses and I’m sure they’d mean nawt under a flat tax. 🙂
Hi Gordon!
Yikes! It’s tough to loan friends money and then try to collect. Don’t you ever watch Judge Judy? 😀
I agree legit expenses would not be allowed deductions under a Flat Tax and would likely also be taxed upon purchase, but the “Schedule C” crowd is who the IRS is sighting in this new, voracious hunt for more tax money. There’s a war to fun, you know.
Hi David,
We’re going to send out 1040s and payment out either tonight or tomorrow since we owe money.
If I was filing as a single person, I’d get money back, but since my wife is an independent contractor, we always end up having to write a check because we can never predict what the final 1099 MISC will be. I have extra money taken out of my check to help make sure that we are as close to being even when taxes are due.
I wouldn’t mind a flat tax — as long as the percentage isn’t too high. Also, a national sales tax wouldn’t be a bad thing as another alternative.
Hi Chris!
Yes, a lot of people get caught in that side-business/self-employed/freelancer conundrum of wondering how much one owes and how much one needs to pay in or get back. It can drive one completely bonkers! Do you hire someone to do you taxes?
We used to always have to pay in a lot, and then we just had more withheld. It’s a good psychological benefit to get a bit back in the end that to pay in a ton! 😀
I’m up for a national sales tax and a fair flat tax. I think easier is better because people can understand it and they don’t feel cheated or feels others are getting away with not paying their fair share.
The nice thing about the sales tax is that it would apply to all people — but would probably end up bringing in more money from higher income folks who can always figure out ways of not earning any income, but having their needs and desires met to the lifestyle expectations to which they’ve grown accustomed.
The middle income folks who get paid and have withholding reported on W2s or are paid and have their income reported on 1099MISC forms end up paying a higher percentage of their income to the “man.”
The poor don’t have to pay taxes and even get money back with the Earned Income Tax Credit.
The rich don’t have to pay because they figure out ways to avoid taxation legally.
The sales tax would be the most egalitarian of all tax schemes.
And, the flax tax would work — it has been proven to work in Russia and other countries where it has been implemented.
http://www.hoover.org/research/russianecon/essays/5144587.html
Hi Chris!
RIGHT!
We need some basic fairness and transparency in the tax code. Right now it’s just a jumble and if you ask three tax experts to prepare your return you’ll get three different results because there’s no clear mandate and lots of room for being aggressive or conservative – but no real way to get it 100% from what I hear from my accountant friends.
It is certainly the middle class that pays the way of this nation. It is on our backs that the rich get richer and the poor try to haul themselves out of their despair. It’s unfair and it’s hard to take and there’s no way anyone will fix it because the core of the middle class believe in getting along and not making trouble.
I always get a tax refund–I’ve been living happily on $20,000-$30,000 a year since college, and I’m usually up to something that gets a tax cut in the state I’m in (teaching public school in Louisiana, for example). At the moment I’m a working grad student in Pennsylvania, so I got lots back this month–which was a lovely “surprise”, but it doesn’t beat a savings account. For heaven’s sake, that five hundred dollars was not earning any interest while the government was using it partly in ways I don’t approve. I think overpaying is a little silly (unless you have a strategy, like Chris), but possibly hypocritical for people who don’t support the current administration.
Now, state-level taxes? Pennsylvania can borrow my income for as long as they want. They may have more spurious taxes than any other state where I’ve resided, but they sponsor a variety of programs for public well-being. I donated most of my (relatively small) state tax refund to Breast and Cervical Cancer Research fund.
Hi Tanglethis!
I, too, do not understand the why of using the IRS to house your money. I knew several people in Nebraska who would get back $8-10,000.00 a year from their annual tax refunds and they didn’t have a lot of money during the year! Their refund was used as a reason to splurge and celebrate for “fairly beating the system.”
I’m glad to know you don’t mind your PA state taxes! It’s quite fine you donated your refund to research!