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Tax Facts 2010 – Part II

February 13, 2010 at 10:47 am

Continuing with my annual tax season observations about taxation in America, following are some additional random facts (in no particular order), along with some of my conclusions about our income tax laws, who pays, who doesn’t, and the impacts our system of taxation have on the nation’s productivity:

Households in the lowest 20% of income received about $8.21 in federal, state and local government spending for every dollar of taxes paid (in 2004), while those in the top 20% received only 41 cents in benefits. (Tax Foundation Working Paper No. 1, March 2007).
There are 1,890 forms files are available on the IRS website, IRS.gov. The easiest federal income tax form, the 1040EZ, has 33 pages of instructions.
The IRS distributes 8 billion pages of forms and instructions annually. End-to-end, they would encompass the earth 28 times.
Approximately 60% of taxpayers hire a professional to have their tax returns prepared each year.
Income taxes consume over 38% of the average family’s income, which is more than they spend for food, shelter and clothing combined.
The top ten states that have the highest percentage of people who do not pay taxes are (in descending order): Mississippi (43%), Louisiana (43%), Arkansas (40%), New Mexico (38%), Alabama (37%), Texas (37%), Montana (36%), Oklahoma (36%), South Carolina (36%) and Georgia (36%).

Our tax laws have become so complex and contradictory that no one, not even the most brilliant tax professionals, including IRS experts, fully understand them.

It’s worth noting, I think, that when I started practicing public accounting in the early 1960s, the filing deadline was March 15, not April 15, and only one 90-day extension was permitted. Today, the due date for filing is April 15, and it is possible to obtain a six-month extension - to October 15 - primarily because of the increased difficulty of obtaining the necessary information and the complexity of preparing and filing tax returns.

Many societies view taxation as a contest between tax collectors and citizens, with payment or avoiding payment of taxes as the prize. But we are different we are told, because Americans voluntarily, that is, willingly, file tax returns and pay their taxes.

Baloney! If that’s true, why do we hear so much about taxes not being paid by people who work or do business in the “underground economy”? Would you file a tax return if you were not afraid of the consequences of not filing?

Putting aside the government’s hype and PR initiatives, the reason our income tax system is so successful is FEAR. Fear of being audited, fear of being assessed, fear of tactics employed to collect unpaid taxes, fear of intrusion into our personal affairs, fear of not being able to defend ourselves against the unlimited power of government in general and the IRS in particular.

I believe the IRS has carefully cultivated this image over a period of many years. Who can say that they don’t have a sudden, albeit perhaps brief, fearful reaction when they find a letter or notice from the IRS in their mail? I know I do, and I’m a retired CPA. I don’t want to hear from them, ever! When I do get some sort of communication from my friendly tax agency (federal or state), I just know it’s going to cost me time, money and aggravation. Perhaps you’ve noticed over the years that around tax time it’s common to see a spate of media stories about prosecutions for tax fraud. In my opinion, that’s no accident.

One of Ronald Reagan’s many sage observations sums up the situation rather neatly: “The taxpayer: That’s someone who works for the federal government but doesn’t have to take the civil service examination.” For my part, I believe Americans are over-taxed and under served by their government, while our politicians are constantly looking for ways to impose new taxes under the radar of public scrutiny and awareness. Will it ever end? Probably not, until we have allowed ourselves to be taxed into near or complete oblivion.

February 13, 2010 | Filed Under IRS, Internal Revenue Service, Tax Foundation

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Tax Facts 2010 – Part II

February 13, 2010 at 10:47 am

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