If you have a job that pays $30,000 annually, your actual spending power is actually somewhere close to $19,000. As time passes, we notice that more and more of our paychecks are withheld for taxes. When we take the time to look at our check stubs and realize just how much of the money we worked for is being withheld for tax purposes, it is maddening. But it has happened gradually over time, so it doesn‘t have the impact of an all-at-once increase. Thirty years ago, only about 20 percent of our yearly income went to federal, state and local taxes. We have come to accept this tax invasiveness as a society because we really have no choice.
Similarly, the federal tax code has evolved over time, and each year it seems as though there are hundreds of revisions. Only accountants can be expected to keep up with the vagarities of the code, and it is perhaps only that segment of our society that welcomes tax complexity. Non-accountants have limited options -- go the easiest route possible and do their own taxes, or hire an accountant or tax preparer.
You could almost look at the latter as another form of taxation. And those who don’t use an accountant in hopes of saving some money also often pay the price.
Overlooked mortgage and interest and points, charitable contributions and state and local income taxes and property taxes were not taken into account on as many as 2.2 million returns in 1998, according to a General Accounting Office report released last week.
Those taxpayers took the more straightforward standard deduction even though they would have been able to deduct even more had they itemized. This cost taxpayers at least $948 million in overpaid taxes - and, unbelievably, half of those returns were prepared by a professional, according to the report.
Time out.
There are alternatives which would be radically different from the system to which we are accustomed and would be so much easier for the vast majority of Americans.
One is the flat income tax, which was proposed in several forms during recent presidential campaigns but has not gained enough political backing to receive serious Congressional consideration. Most flat tax proposals would involve throwing out the current tax code. Proponents say that returns could be filed on a post card, and would exempt a certain amount of yearly income based on family size. After the exemptions, which could be up to the mid $30,000s, everything above the non-exempt floor would be taxed at somewhere between 17 and 19 percent. Under this proposal, the person making $30,000 would probably be due a refund if he or she is married with kids -- and it wouldn’t take an accountant to pore over itemized deductions to get it.
Another proposal is a national sales tax, which would tax all retail purchases at around 15 percent. Proponents say this is the fairest form of tax, on what people consume. It would replace the federal income tax, so there would be no more withholding from paychecks or complicated forms to file. Most proposals include a flat rebate which would have the effect of the exemptions in our current system.
The economics of both a flat income tax and a national sales tax will be analyzed with a fine-tooth comb if and when they ever come up for serious consideration, and that is probably what is keeping it from happening. But the American people are deserving of a fair, equitable system of taxation that puts less of a burden on them to comply while allowing them to receive the best possible financial benefit. The time for this debate is now, but more than likely, it will come up again in a couple of years during the presidential campaign when someone will be able to gain politically.
This column was written April 14, 2002, and published in several print and web publications across the country.
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