And let’s not forget the millions more, like my forebears, who never got rich, but have been able to provide a decent living for their families through honest work.

My hat goes off to those who have dreamed the American Dream and have achieved it. Unfortunately, for many of those who have worked hard to become financially successful or provide more for their families, the American Dream has turned into a tax nightmare: A bad dream where you work hard while others take your hard-earned money. We’ve turned into a nation that redistributes wealth, with the IRS taxing the higher income earners a disproportionately high amount while writing a check to those who have not worked and sacrificed for their income.

Now, let me say this: I believe America should be a land of equal opportunity, but not a land of equality. I believe people should be treated fairly regardless of their skin color, national origin, religion, etc. I think that’s something that makes America great. But we aren’t helping by heavily taxing what one person has honestly earned and giving to others. By this we are teaching them that wage theft, in the name of being “fair”, is permissable.

A society that offers its citizens an equal opportunity to work hard and advance themselves is all that can be expected of “fairness”. A society that forcibly takes earned income away from one person to give to another person is actually discouraging hard work. Entrepreneurs work unhuman hours to create the future, while undertaking significant risks. Entrepreneurs and successful businesspeople should not have to pay more to the Internal Revenue Service if their risks pay off, just as they would not receive an award if their startup venture failed.

We want to encourage every American to stand on their own two feet and to push forward, not enable them to continue lying down and not contribute to society.

We have become a nation of takers and givers, as Sherman Frederick points out in his article Tax Man Comes For Half of Us. We have become a nation of that says “wealthy” people (however the takers want to define it at any given moment) should be forced to give their income away to others.

Those receiving the handouts from massive taxes should rise up in revulsion and say they don’t want what they didn’t produce, and that they don’t want to treated like a charity case.

Have we reached the point where receiving free handouts is no longer shameful, and considered a “right”?

If we create a nation of people who expect a “hand out”, then we’ve fallen so far from our founding ideals that we may not recover.

Who’s to blame? Sherman Frederick points to Obama and Democrats in general (and a few Republicans). I think it’s easy to blame Obama, and he certainly deserves to shoulder a large share of the blame, but I believe it extends far beyond the current President. From eroding values to disengaged parenting, there are a lot of reasons that we’ve become a country of people seeking instant, selfish gratification without lifting a finger.

Let’s initiate change: Work harder. Seek the pride and satisfaction of a job well done. Sacrifice to get a better education. Save money and spend it less frivoulously.

Contact your government representatives at all levels and demand fairer taxation and aggressive government representation. Commit to working to change things in your own circumstances through hard work, a determined will, and guidance from your core beliefs.

And remember – pay your taxes, but take every legal tax-minimizing break you can to avoid redistributing more of your wealth than is necessary.

Through social change there may be a day when our tax debts decrease instead of the current increasing trend.

During his State of the Union speech in 1964, President Lyndon B. Johnson discussed the Revenue Act which ultimately led to the lowering of income tax rates.

You can read more about the Revenue Act of 1964 here, which lowered the individual income tax rates and the corporate income tax rates.

Here is a script of what President Johnson speaks in the video:

Above all, we must release $11 billion of tax reduction into the private spending stream to create new jobs and new markets in every area of this land.

These programs are obviously not for the poor or the underprivileged alone. Every American will benefit by the extension of social security to cover the hospital costs of their aged parents. Every American community will benefit from the construction or modernization of schools, libraries, hospitals, and nursing homes, from the training of more nurses and from the improvement of urban renewal in public transit. And every individual American taxpayer and every corporate taxpayer will benefit from the earliest possible passage of the pending tax bill from both the new investment it will bring and the new jobs that it will create.

That tax bill has been thoroughly discussed for a year. Now we need action. The new budget clearly allows it. Our taxpayers surely deserve it. Our economy strongly demands it. And every month of delay dilutes its benefits in 1964 for consumption, for investment, and for employment.

For until the bill is signed, its investment incentives cannot be deemed certain, and the withholding rate cannot be reduced—and the most damaging and devastating thing you can do to any businessman in America is to keep him in doubt and to keep him guessing on what our tax policy is. And I say that we should now reduce to 14 percent instead of 15 percent our withholding rate.

I therefore urge the Congress to take final action on this bill by the first of February, if at all possible. For however proud we may be of the unprecedented progress of our free enterprise economy over the last three years, we should not and we cannot permit it to pause.

In 1963, for the first time in history, we crossed the 70-million job mark, but we will soon need more than 75 million jobs. In 1963 our gross national product reached the $600 billion level—$100 billion higher than when we took office. But it easily could and it should be still $30 billion higher today than it is.

Wages and profits and family income are also at their highest levels in history—but I would remind you that four million workers and 13 percent of our industrial capacity are still idle today.

We need a tax cut now to keep this country moving.

For our goal is not merely to spread the work. Our goal is to create more jobs.

(Speech source: Miller Center)

A note to today’s politicians: Johnson was right. Lowering income tax helps the economy. It puts money in the hands of Americans and fuels economic growth through spending and innovation. As today’s tax rates increase, people have less to spend, they are forced to rely on credit, and they no longer rely on themselves but on government handouts.

Wake up, Washington, this increased taxation HAS to change!

There are thousands of pages of IRS tax documentation and the IRS themselves require an army of experts who spend every waking hour navigating this documentation. They package it up into forms and guides and ask millions of Americans to be completely accurate… or else. Minor errors and tiny oversights can trigger invasive and disruptive tax audits.

How bad is it? Here’s an info-graphic about the tax system that we love. For those of you who prefer text instead of images, I’ve interpreted it below.

There are about 138 million taxpayers in the United States and these taxpayers pay a whopping $2.3 trillion (yes, with a “t”) in taxes each year. (Who can afford college tuition at that rate?). Even though that 2.3 trillion is such an unbelievably gigantic number, it’s worse knowing that 92 million taxpayers (more than half of all taxpayers!) make less than $50,000 per year and pay between 10% and 15% of their income in taxes. Meanwhile, 5 million taxpayers make more than $200,000 and pay 20% to 25% in taxes each year.

Ready for some more shocking numbers? Some say that over 16% of Americans evade taxes each year while 78% of those who file taxes get $2,700 back in their returns. That results in over $345 billion dollars of lost revenue (worth 2.6% of our national GDP).

Worse yet: The tax code in 1913 was 400 pages but now it’s over 70,000 pages long, so it’s not surprising that the IRS themselves estimate that it will take you more than 24 hours of straight calculations to do your own tax returns! It’s no wonder that more than 60% of Americans pay someone else to do their taxes.

(source: QuickSprout)

While a sales tax SEEMS like a good way to redistribute taxes to everyone who buys (instead of charging higher income taxes to people who earn more money), it is not a good solution. Implementing a VAT is complicated and, as Samuelson suggests, will only increase government.

And that is what concerns me more. Of course I don’t want higher taxes, but a bigger government is even more worrisome – because they create unnecessary spending (case in point: More of our income taxes go towards the federal pension than to education).

What’s the perfect size of government? I want it to be no larger than it was approximately 100 years ago. It want it small, the way it was before the big government era when we thought “the bigger, the better.”

Here’s why: The government is killing us while it benevolently attempts to provide us with a cradle-to-grave safety net:

• It’s killing us with taxes
• It’s killing our spirit of independence and non-government dependence
• It’s killing our “can-do” spirit

The US was founded on liberty and opportunity and both of those things are quickly disappearing as we become overtaxed and then enslaved to debt.

Large groups of Americans now wait eagerly for their government check:

• Farmers
• Corporations
• Earned Income Credit recipients
• Seniors who obtain more in benefits/insurance value than their tax contributions would have ever bought on the open market

The government, through its hand-outs, is creating class warfare, age warfare, and warfare between small business and large business.

• Those that earn more are encouraged to dislike those that earn less.
• Those that earn less are encouraged to be suspicious of those that earn more.
• Those that are older are encouraged to be hyper sensitive to younger folks who don’t want to pay for their benefits.
• Those that are younger are beginning to begrudge the payments they must make to seniors who are better off than they are, or already have their homes paid off, while they also receive extra tax deductions, and in some instances may be excluded from paying property tax on the local level.
• Small businesses looks askance at corporate welfare.
• Large businesses seek to gain preferential tax treatment over smaller competitors.

Everyone SAYS they don’t like taxes and big government, but they’ve already been “bought”. They want everybody else’s government check be reduced or stopped – but they don’t want their government benefits or preferential treatment touched.

Do we have the guts to have a smaller government? Do we have the will to fight for reduced government that may actually cause our own governmental benefits to be cut? As I survey the present landscape, I don’t see much reason to be optimistic.

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.

Photo from despair inc.

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.
• In 1985, Income Tax Form 1040 was 52 pages long.
• In 1995, Income Tax Form 1040 was 85 pages long.
• In 2005, Income Tax Form 1040 was 142 pages long.
• By 2008, Income Tax Form 1040 was 161 pages long!

(Image and Information Source:  RealClearMarkets.com)

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.

It seems that a gentleman in California named Haroon Amin was recently caught for his tax fraud: Between 2002 and 2003, he created 250 tax returns using the identities of people who had passed away along with some falsified W-2 forms. The IRS rejected most of his claims. That should make us happy but here’s where I get upset:

The IRS may have rejected most of Amin’s claims but they still paid out about $2 million in refunds to banks in Armenia and Pakistan. Amin was caught, charged, and sentenced. Unfortunately, he will only serve a maximum of five years and he must pay a maximum of $250,000 in fines.

Maybe the IRS needs to break out the calculators that are busy calculating tax forms to make sure that the average American is paying what they owe and instead focus on getting all of their money back from this guy. The news report didn’t say whether or not all of the money was returned, and I’m not an expert in international banking, but I seriously doubt that banks in Armenia and Pakistan are forthcoming with the money owed.

I realize that the IRS is extra busy during tax season as they process returns, perform audits, and somewhere in there weed out fraud. But there HAS to be a better process than this, which doesn’t seem to recoup the losses incurred by tax payers for one tax fraudster.

Source: The full article is here (although you’ll need to scroll down about two-thirds into the article).

But recently, the IRS seems to have realized that they can only bleed someone for so long. If they keep taking their pound of flesh, they are eventually left with taxpayers who have nothing else to give. And this is the case even more so now than ever before because of the economic turmoil facing the world.

So, the IRS has “graciously” conceded to “additional steps to help people who owe back taxes”… in particular, for those who are facing “unusual hardships”. . Here are some of those additional steps:

The IRS increased the authority of its employees to suspend collection when there’s a hardship situation. This includes:

• Job loss
• Social security or welfare recipients
• Significant medial bills

Taxpayers who have difficulty making payments (because of a number of reasons including job loss) may skip a payment or pay reduced payments.

Also, the Offer in Compromise has been augmented to allow for drops in home values (which once may have created difficulty in getting the IRS to agree to an OIC). And those who have an OIC agreement but are at risk of default now have options to avoid default.

Lastly, the IRS is speeding up its delivery of levy releases by reducing the requirements that taxpayers must meet when requesting a levy release.

In some ways, it’s nice to see the IRS finally recognizing that it needs to help people who want to pay their taxes but cannot. After all, it costs taxpayers a lot of money to punish taxpayers who aren’t paying their taxes… and law-abiding taxpayers who simply are not able to pay should not face dire consequences, particularly in this economy.

But let’s be realistic: While it’s nice to see the IRS doing something about it, the only reason they’re doing it is because they know that the pound of flesh is running out. They know that they can’t get more money out of taxpayers in the traditional way, and with the economy making it more and more difficult, they have developed “creative financing” to make it happen.

Tentative kudos to the IRS.

Nina E. Olson is the National Taxpayer Advocate, which is a kind of independent watch dog group within the IRS.  Each year she is required by Congress to produce and annual report about the problems with the IRS. Each year she produces am annual report, and each year the IRS acknowledges it and then promptly ignores it.

In her recent report, Olson outlines several problems with the tax code right now, specifically around the tax code’s complexity and the economic difficulty that Americans are facing. Here are a few highlights (and my take on them):

• “Taxpayers and businesses spend 7.6 billion hours a year complying with tax filing requirements”. That is huge. To put that in perspective, every man, woman, and child in the world is given a total of 8760 hours in a year. With an average lifespan of 75 years, every person will enjoy just over 650,000 hours of life. So, if 12,000 people spent every hour of their entire lives doing income tax, they would be able to do the work required of one year’s worth of taxes!
• “Taxpayers spend $193 billion a year complying with income tax requirements, an amount that equals 14 percent of the total amount of income taxes collected”.
• 80% of individual tax payers have to pay to get help with their taxes (either for someone to complete them or for software).
• There are changes to the tax code every single day. In 2008, Olson points out, there were over 500 changes.

These are just a few of the many problems Olson has highlighted in her report. You can read the IRS report here.

Olson’s report is very informative. It tells us that the tax system is so unwieldy and complex that no one can efficiently navigate it and this creates more problems than it solves.

Just imagine if Americans were suddenly given 7.6 billion hours of their lives back. I’m sure that stress and crumbling family life would be positively impacted. Just imagine if Americans were suddenly given $193 billion back. We wouldn’t feel the need for a BandAid stimulus package. Just imagine if taxpayers could sit down in an evening with clearly written papers and could quickly fill out their income tax forms. I believe we would minimize late filings and tax mistakes.

For further reading, visit the National Taxpayer Advocate site, here: taspresskit.irs.gov.