President John F Kennedy was the first president to ever visit the offices of the Internal Revenue Service.
The quotes I have heard or read from President Kennedy, including this one, remind me of how much some politicians have changed their political philosophy over the last 50 years.
President Kennedy spoke at the IRS on the topics of tax burdens and efficiency:
“So many taxpayers have become so preoccupied with so many tax-saving devices that business decisions are interfered with, and the efficient functioning of the price system is distorted.
“Moreover, special provisions have developed into an increasing source of preferential treatment to various groups. Whenever one taxpayer is permitted to pay less, someone else must be asked to pay more. The uniform distribution of the tax burden is thereby disturbed and higher rates are made necessary by the narrowing of the tax base. Of course, some departures from uniformity are needed to promote desirable social or economic objectives of overriding importance which can be achieved most effectively through the tax mechanism. But many of the preferences which have developed do not meet such a test and need to be reevaluated in our tax reform program.”
Fascinating. Let’s read his great quote once again:
“Moreover, special provisions have developed into an increasing source of preferential treatment to various groups. Whenever one taxpayer is permitted to pay less, someone else must be asked to pay more. The uniform distribution of the tax burden is thereby disturbed and higher rates are made necessary by the narrowing of the tax base.”
Our politicians of today should heed his straight forward, common sense views on this point.
I came across this interesting study done on the behalf of the IRS Oversight Board. The study asked participants if they felt it was okay to cheat on their taxes. The study itself has been done since 2002 and over the years, the range of people who feel that it is completely unacceptable to cheat on their taxes usually fluctuates between 84% and 86%. In 2009, 84% of respondents said it was unacceptable to cheat on their taxes.
What I find interesting is that in 2003, only 81% said it was unacceptable to cheat on taxes and in 2008, 89% said it was unacceptable to cheat on taxes.
Along with the answer of “completely unacceptable” (the orange bars in the graphic below), somewhere between 6% and 12% believe that it is okay to cheat a little here or there (the light blue bars, below). And 3% to 5% of respondents believe that you should cheat as much as possible.
You can read the rest of the article at the New York Times.
So I went and dug up the number of tax returns filed to see what this meant in real numbers. Let’s use 2008, because we have all the data we need from that year:
In 2008, according to a report by the IRS, 155 million tax returns were filed. So here’s what it meant for 2008 tax returns:
89% of respondents, or 137,950,000 tax returns were completely honest.
6% of respondents, or 9,300,000 tax returns had a few cheats here or there in the return.
3% of respondents, or 4,650,000 tax returns were as dishonest as possible.
Those are interesting numbers. Here’s my take on them: I believe in paying less tax, but I believe in doing so legally. The IRS needs to be more understanding with people who are having difficulty paying their taxes, and they need to offer them real options to help them with their tax debt.
Most people with IRS problems want to want to pay their tax debt, but if money is tight, they need the IRS to be more willing to work out an arrangement. Whether that’s a payment plan or an Offer in Compromise settlement offer.
And just as importantly, the IRS needs to create ways to reduce the number of income tax cheaters (13,950,000 tax returns have some form of dishonest response).
By being so tough on honest people who are having trouble paying their tax debt, instead of going after the cheaters, the IRS is not doing its job as well as it sould.
If you give a child $1.00 so they can go to the store and buy some candy, what would you think if they came back with $1.52 worth of candy? Obviously there’s a problem. Did someone miscount? Did they steal the additional $0.52 worth of candy? Is the child running a credit tab at the store?
Basic household economics would suggest that we should only spend what we have. And everyone knows that overspending on credit is risky, and if allowed to escalate, will eventually catch up to you.
But the US government is doing exactly this with our income taxes. According to a report which I found in the St. Petersburg times, written by Brian Riedl of the Heritage Foundation, the IRS will collect $18,276 per household (which is shocking enough already) but here’s the worse part: It will spend $31,406 per household (source).
I can’t think of another word for that besides “ghastly”. No one could run their home for very long with that kind of fast-track-to-bankruptcy mentality but the government seems to think it can.
The money is spent like this:
Social security: $9,949
Defense: $6,071
Anti-poverty: $5,466
Unemployment benefits: $1,640
Interest on the federal debt: $1,585
Veterans’ benefits
Federal employee retirement benefits: $1,018
Education: $914
Highways/mass transit: $613
Health research/regulation: $550
Mortgage Credit: $470
Now, just to be clear, I DO think that some of this government spending is important. We need to invest in the defense of our nation, some infrastructure, and some very limited regulation. But I’m concerned about the numerous other spending – overspending, really – that is bankrupting us as a country and as individuals. Does anyone else find it scary that we’re spending that much per household on anti-poverty? And I’m also not happy that we’re spending so much on federal employee retirement benefits.
You don’t need to be an economist, or have an MBA, to figure out that the U.S. government, unless we change our governmental spending habits, is heading for trouble. But the solution will be not be easy.
We must each stop fighting when our slice of the USA money giveaway is challenged. All of us, including corporations, farmers, seniors, and other individuals must all stop protesting when our favorite “benefits” and “entitlements” are being reduced.
We must stop merely pointing at “the other person” as the one who needs to have their “benefits” and “entitlements” reduced or eliminated. We must also be willing to point the finger at ourselves.
All of the groups appear to selfishly want to get as much as they can for themselves from the government, but the long-term way for each of us to better ourselves is to get the government out of the business of taxing us so much and then giving away much more.
Only then will we be economically better off, and be more independent of the stranglehold that Congress’ IRS has over us. I can say I am in favor of giving as little tax as possible to the IRS, but I must be willing to have our government make the hard choices necessary to make that happen.
Imagine that instead of paying your taxes at the end of the year, you paid them all at the beginning: Every dollar you earned went to municipal, state, and federal governments until your taxes were paid off for the year. Then, everything you earned after that was yours to keep. It’s theoretical, of course, but it’s a good measure of the tax burden of a country’s citizens. And you can watch to see how this “Tax Freedom Day” moves in order to determine how your tax burden increases every year.
In 2010, the US Tax Freedom Day is April 9. That means, if every dollar you earned between January 1st and April 8th were paid to the government, every dollar you earned after, until the end of the year, was yours to keep. By comparison, in 1900, the US Tax Freedom Day was January 22. And in 2000, exactly 100 years later, it was May 1st. So although we like seeing that our tax burden has decreased (as indicated by the shift from May 1st to April 9th), it’s still a lot of money to pay.
So April 9th is a day of celebration. But it’s also a day of mourning. We should be concerned about the amount of taxes we pay and about where those tax dollars are being spent. And, we shouldn’t celebrate too much that our Tax Freedom Day has moved closer to the beginning of the year because some of the lighter tax burden is simply the result of short term tax breaks enacted by the current administration to help with economic recovery. And more alarmingly, according to the Tax Foundation, if Americans had to pay for what the government was actually spending this year, Tax Freedom Day would really fall on May 17.
This chart shows the Tax Freedom Day through history and note how the adjustment dramatically increases the Tax Freedom Day!
By comparison, though, Norway and Sweden’s Tax Freedom Day is July 29th. So although I don’t like paying all the taxes we do, I’m proud to be an American.
For more information on Tax Freedom Day for United States taxpayers click here.
Everyone loves tax credits. There’s no better feeling than finishing your income tax return on (or preferably before) April 15 and seeing that you own nothing… or even that the IRS owes you. Long before the money arrives in your mailbox, you’ve probably spent it on something.
Tax credits seem great! But they come at a cost and it is threatening the fabric of our economic system.
As governments support specific groups or reward specific behaviors, they look to income tax credits as a way to manage that support and people make the mistake of thinking that their “great” income tax credits are a bonus.
But the real result is much more startling: A dwindling group of people are paying for a larger and larger group of people. Since the dawn of the new millennium, one in four taxpayers are considered “non-payers” because they owe no taxes (or receive money back). The number of non-payers grew by 36% while the number of tax filers grew by just 13%. So the gap is narrowing and the IRS is evolving into a turnstile of money, taking it in and then pumping it back out again.
This is increasing dramatically and it’s not just for impoverished families any longer! In fact, some families earning as much as $50,000 are able to combine deductions and credits to get out of paying taxes.
In this chart, notice how the percentage of returns with no liability is increasing!
Here’s the reason why this upsets me: tax credits mean the the government, instead of you and I, is deciding to give away our hard-earned money, and deciding whom to give it to.
Democracy being what it is, politicians will buy votes by giving away money that’s not their’s to give away. That will enevitable result, just as it already has, in more and more people getting “tax credits”. This means that a smaller group of high income earners are paying an increasingly disproportionate amount of taxes to support everyone.
If the IRS says you owe money, it’s not just because they want you to pay… it’s because they need to pay off others who are getting an increasing amount of tax credits.
The problem isn’t going away any time soon: Tax credits sound great and win elections. But politicians are just borrowing against the future.
Read more at the Tax Foundation about how Americans are getting out of paying taxes and avoiding societal obligations.
In horror movies, monsters grow to gigantic proportions and terrorize island nations while people run screaming in panic. The citizens of the nation watch in horror as their cities and towns are demolished under the fury of a monster that won’t stop growing.
While that might be entertaining fare for some (but not necessarily me), tax payers face a similar monster that grows and grows and grows. The IRS Income Tax Form 1040. This form is the starting form for individual federal income tax and has been published annually since 1915. (Read more about it at Wikipedia).
Now here’s the scary part. This form is huge and it’s growing. The chart below shows just how big it’s getting.
In 1965, Income Tax Form 1040 was 17 pages long.
In 1975, Income Tax Form 1040 was 39 pages long, more than double the length of the 1965 version.
That’s an average of just over 3 pages of new material every single year. By the time my great-grandchildren do taxes, Income Tax Form 1040 will be longer than my copy of Moby Dick.
