In a recent article by Robert Samuelson at RealClearPolitics.com called “How Big a Government Do We Want?“, Samuelson talks about a proposed Value-Added Tax (VAT) which its proponents suggest would relieve the US of its disproportionate tax burden and help to pay the deficit.
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.
When you don’t pay your taxes, the IRS is on you like ants to a picnic. I know that because everyday I work with people whose tax problems are exacerbated by strong arm IRS tax collection techniques.
But what about people who overpay their taxes? It might seem hard to believe but the IRS had $1.3 billion sitting owed to 1.4 million people who did not file a tax return for tax year 2006. (You can read more about it at this IRS press release). This outstanding amount owed back to taxpayers happens because someone might pre-pay their tax based on quarterly estimates but then they fail to file a tax return at tax filing time.
The problem is, if you didn’t file your income tax within three years you generally forfeit your right to receive that refund. That means the money will not be leaving the U.S. Treasury, and Congress will be able spend it for its many “important” projects.
It doesn’t seem fair does it. The IRS gets a much longer time period to collect any money you owe them, but you get a much shorter time period to collect money from the the IRS that they owe you.
I guess Congress, who makes up these screwy rules thinks it’s fair, but that because it benefits them.
They fix the rules in their favor.
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.
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.
Last year’s so-called “Great Recession” wreaked havoc on a number of economic fronts and its effects are still being felt today during tax time.
Here’s the situation, as reported by the WCF Courier and summarized here for your convenience: Last year, people had jobs and income but not all of them had sufficient taxes taken out of their paychecks. This year, some of those people don’t have jobs. The problem? They earned taxable income but now have no income to pay their back taxes.
That’s a difficult situation to be in. On the one hand, I understand the desire that these taxpayers had initially to avoid the constant pay-reducing reminder of income tax by delaying their tax payments. On the other hand, it is a bit like gambling in the sense that they are accepting the risk that they will have an income to pay the tax debt at a later time.
What’s the solution? Unless we reduce or eliminate the excessive taxation of American taxpayers, I don’t see an easy solution. And I’m not about to say “well, they should have…” because should-haves don’t solve the problem right now.
Their best option is to file their income tax and pay what they can, even if they can’t pay it all. As the article correctly points out, the penalty for not filing is greater than the penalty for filing and not paying. So it always “pays” to file your tax return, even if you can’t pay.
The next thing they should do immediately after filing? Contact a licensed tax attorney. It is my belief that tax attorneys are the one group of tax professionals best trained to assist you. I believe they’re more aggressive in representing you than a CPA or accountant would be. Tax attorneys aren’t afraid to look at different options which might help you.
Tax attorneys aggressively go to bat for taxpayers who are staring at the open hand of the “tax man” and wondering how they will fill it. We use 100% legal tax resolution strategies, tried and perfected over the years, to help people in difficult tax situations.
No tax case is hopeless, and of course the options will vary from case to case.
Bernard Kerik, a former New York City Police Commissioner, pleaded guilty recently of tax evasion.
The Associated Press reports that Kerik was nominated to head up the Department of Homeland Security in 2004, after being nominated to the post by Rudy Giuliani.
During the vetting process that anyone applying for sensitive positions must go through, he made statements that were later proved false. His charges were divided into 3 different categories: Corruption (and these charges were later dropped), lying to the White House, and tax crimes.
Kerik’s Tax Crimes
Kerik pleaded guilty to the following tax crimes:
Lying about paying taxes on his children’s nanny
Hiding income from the Internal Revenue Service
Faking a charitable contribution
Failing to declare on his returns book royalties, consultant fees and the use of a BMW
The Associated Press writes, “Kerik could be fined in addition to being sentenced to prison. He has already agreed to pay nearly $188,000 in restitution and to resummit his personal tax returns for six years, paying past-due taxes and penalties.”
Americans face 4 very different kinds of stresses during tax season. I call them the “April 14 stress”, “April 15 stress”, “April 16 stress”, and “April 17 stress”.
April 14 tax stress
In the weeks and months leading up to the April 15 tax deadline, you (and most other Americans) will be facing the stress of tax preparation. There’s the effort of gathering paperwork, pouring through difficult-to-understand tax forms, juggling paper and a calculator, and hoping desperately that you don’t have to pay taxes this year. The stress comes from finding the time to do taxes and then from trying to figure out each separate line in your tax return.
April 15 tax stress
No sooner is that stress over then the next stressor appears: April 15 is tax deadline day. Most Americans just barely squeak their tax returns in on time and the stress of trying to get it done and rushing through those last minute calculations feels rushed. Did you get everything? What if you didn’t do something correctly? You vow to do your taxes earlier next year (but who has the time?)
April 16 tax stress
Fortunately, not everyone feels this stress, but many people do. If you owe tax and you have to pay it, guess what: your bank account may be drained on this day to cover the check you wrote for your taxes. That’s stressful as you watch your tiny nest egg now devoured. Goodbye to that new sofabed you were hoping for.
April 17 tax stress
Have you ever played roulette and hoped desperately that the ball lands on your number? April 17 tax stress is the opposite: It’s audit stress. You hope desperate that you don’t get picked for the probing and invasive procedure known as the tax audit. And realistically, this stress doesn’t go away on April 18; it hangs over us like a cloud every single day.
If you’re facing these stresses, you’ll find some good advice for handling the April 14 and April 17 tax stress in this article at CNN Money called “A guide to avoid an IRS tax audit“. And if you want to avoid the April 16 stress, give our office a call.
The Declaration of Independence asserts that all men (and women) are created equal. This document was written partly in response to the burdensome taxation that the colony felt from Great Britain. And, although we still believe today that all men are created equal, we are certainly not taxed that way. Your taxes can be dramatically higher, based solely on your geographic location. I looked at some basic data to discover which states are the greediest.
First, consider the states with the highest and lowest median household income.
The highest ten in 2008 (in order from highest to lowest) were:
Now, check out this map of state and local tax burdens:
The top ten highest tax burdens are:
New Jersey
New York
Connecticut
Maryland
Hawaii
California
Ohio
Vermont
Wisconsin
Rhode Island
So, what does that tell you? It tells me that the greediest states are New Jersey, Connecticut, California, Hawaii, and Maryland and they are getting a lot of money by burdening their higher-than-average income earning populace with a higher-than-average tax burden. We’re not just talking about tiered taxation but about geographic taxation!
It also tells me that the tax payers in Alaska and New Hampshire are very fortunate: They each are in the top ten average median income-earning states but they are also each in two of the bottom ten tax burden states – New Hampshire has the 46th lowest tax burden and Alaska has the 50th lowest tax burden.
