Though I saw it all around
Never thought I could be affected
Thought that we'd be the last to go
It is so strange the way things turn

Sunday, April 15, 2012

The taxing post

Because I've complained about it before, I thought I'd let you all know the result of this year's taxes. Oh, and I submitted my returns last month, in case you're wondering.

This will be the first year in a decade that I'll be getting a refund from the federal government. And a good one at that. So after changing my W4 to "married, hold at higher single rate" with an extra amount withheld, I've finally gotten to the point where I don't owe at the end of the year. Compare this to 2000 where I claimed 3 deductions and received a refund. Now, I do earn almost 165% of what I did back in 2000, so part of that may have been working through the middle of that new tax bracket, but what really turned the tide was the Bush Tax Cuts. After they were passed, because we don't have children, we went from a net overpayment to a net underpayment. About every 2 years after that I would adjust my W4 to try and get to even.

What really made the difference? While I haven't fully reviewed the full numbers through the documents, we had a ton of deductible expenses last year. A mix of massive mileage on the car, donations to charity, medical expenses, and retirement savings all added up to take us beyond the standard deductions (which our tax account predicted we would be taking this year).

So we're getting a refund this year. Sometime this summer I work through the full numbers (taking these classes has really sapped my time and mental space).

2 comments:

The Reader said...

Why is the american tax system so weird?

Why do you have to calculate your own taxes ?

I don't like this facet of american democracy.

Steve Buchheit said...

Hey Reader, welcome. Well, the US tax system is weird because of the way it came into being (piece meal), and how it's been amended (because of special interests). There's also a lot of social engineering in the tax code (different rates for married, effective higher taxes for married couples who both work, deductions for children and college, home interest deductions, etc). Every attempt to simplify the code, that I've been alive for, has seen the good ideas complicated by the legislative process and become even more complex that the code it was attempting to simplify. Also, we don't want to include VAT and GST type taxes, which are a part of most other countries tax scheme.

We calculate our own taxes because auditing everyone would increase the government's size to unacceptable portions. That's balanced with the desire that people shouldn't pay more (or less) that what is due. So having people do their own taxes is a form of cost shifting. In addition, there is plenty of non-compliance that would result in significantly lower tax revenues (for instance, most of my freelance customers don't send in a 1099, so it's up to me to report that income). Also, accountants have their own lobbyists, and they don't want to see their business go away.

While everyone hates taxes (and yes, I am one of them - but I temper that with my understanding of how a functioning government should work), I'm not sure there is an equitable alternative. We could go back to the time of revenuers (ie. the actual Taxman people talk about). Those are the people who go around making sure people pay their taxes. In olden times, they went with armed guards to enforce the tax code. The collection was arbitrary. While I think we should have an overhaul of the tax code, what will replace it might be simpler, but would be just as complicated. It's the result of wanting a progressive tax (more is required from those who earn more) and wanting to reward people for doing what the society/government wants them to do (get married, have children, go to college, own a home).

To work into alternatives that allow the government to fully determine the tax, and for that tax to be fair and equitable, would require way too much government intrusion into our live, IMHO. It would also kill the grey and black markets (which are required to keep the economy lubricated, no matter how much those in the legitimate economy complain/pass laws/grumble). An example of this came up in the recent Gulf Oil Spill restitution process. You might remember a lot of people complaining because their checks were based on their "reported" income (ie. their 1040), but many of them did a substantial amount of work "off the books." So they were only getting half the money they felt they deserved.