Have you got your schedule C in order? Have you hunted down all your receipts? Have you made sure to count the depreciation on your laptop and the percentage of your cable bill attributable to your home office expense? And what about those education credits?
After all, it's not like you have anything else to do, right? It's lucky it's all so easy and painless. Ha!
Everybody hates Tax Day, which comes this year on April 17. And so do I. But not for the usual reasons.
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This is the time of year when everyone seems to scream about just how much the federal government is costing us all. Weirdly enough, that's not one of the things that really gets me. It's the things that apparently no one else -- at least no one else in the media -- seems to notice.
Am I crazy? Am I alone? Maybe. You tell me.
Here are my top Tax Day hates.
Why isn't there a riot about this? According to the National Taxpayers Union, we each waste about 12 hours a year, every year, filling out this crazy stuff. Schedule B. Schedule C. Above the line. Below the line. Deductions, exemptions, non-refundable credits. Medical bills over 7.5% of adjusted gross income.
It's like we're being mugged and held hostage. Every year.
The instruction booklet for the 1040 now runs to 189 pages. No kidding. Seventy-five years ago, says the NTU, it was two pages.
The U.S. tax code is insane and out of control. It's tripled in a decade. It now runs to 3.8 million words. To put that in context, William Shakespeare only needed 900,000 words to say everything he had to say. Hamlet. Othello. The history plays. The sonnets. The whole shebang. But the IRS needs four times as many words? Really?
Your tax bill this year is a lie. You're only seeing about two-thirds of the full cost of government services. Really. Taxes are $2.3 trillion. Government spending is $3.6 trillion. The rest is being put on the national credit card.
The tax bill is a lie every year. We've only paid our bills in full on April 15 five times in the last fifty years. The last president to balance the books every year he was in office? Calvin Coolidge -- back in the 1920s. How pathetic is that?
Deficits are just future taxes. According to the non-partisan Tax Foundation, "Tax Freedom Day" falls on April 17 this year -- but "Deficit Day," which includes the full bill, won't come for another month.
Taxes -- to steal from Albert Einstein -- should be as low as possible, but no lower. Stop lying to me.
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3. How they treat investment income
Aunt Sally in Dubuque lives off her savings. Her taxes should be relatively simple. But good luck with that.
She has money invested in blue-chip companies like AT&T and Wal-Mart. Her stock dividends are taxed at 15% or less. Meanwhile her bond coupons are taxed at ordinary income rates up to 35%. It's crazy.
Yes, I know the corporations get a break on their bond payments. But what's up with that?
Now try this: Aunt Sally can pay lower taxes on the money she makes from bonds -- but only if she sells them after a year for a long-term capital gain. If she hangs on and keeps clipping the coupons, she gets whacked with higher taxes.
The tax treatment of investment income is arbitrary and stupid. We treat debt and equity differently for companies and investors. It's irrational. The rules encourage debt. And we treat long-term capital gains better than short-term ones. That's absurd. We only buy securities because we think they are undervalued. Why is it better if they rise in price slowly instead of quickly?
It doesn't end there. Why should you pay income tax on zero-coupon bonds last year just because they rose in value -- even if you didn't sell them or pocket any income? If that's the rule, why shouldn't you pay income tax on your Apple stock? Instead you don't even have to pay capital gains tax, until you sell.
Make the rules simple, rational and clear.
4. The mortgage interest deduction
Uncle Sam should stop bribing me to borrow money I don't have to buy a home that I cannot currently afford.
The mortgage interest tax deduction is wildly popular, but it's a terrible idea. The logic is upside down. It rewards debt and real estate speculation. It rewards high earners who buy really pricey homes at the expense of everyone else.
Forget the idea of a "middle-class tax break." If you're a typical family, you're lucky to save a few thousand dollars. But if you're a bond trader buying a Park Avenue penthouse it could save you $20,000.
Until the recent housing collapse -- caused, of course, by too much debt -- this tax break helped drive up real estate prices. That priced many ordinary people out of the housing market. They had to borrow even more to get in. Cue the debt crisis. (Or they were forced to rent for longer -- and their rents, perversely, weren't deductible.)
According to various analyses, home owners "save" about $130 billion a year from this break. But that's nonsense. Tax breaks like this drive up overall tax rates for everybody. To bring them back down, you have to borrow money and buy an expensive home so you can take the deduction.
Get rid of this stupid break and just raise the standard deduction for everyone.
5. Stupid retirement rules
Uncle Sam wants me to save for my retirement. But only under certain conditions. Sure, he says, I can put aside $17,000 in pretax income. But only if I save through my employer's 401(k) plan. If I'm a regular salaried worker, I can't go down to Fidelity or Schwab and open my own such plan.
For that matter, why am I allowed to invest $5,000 in a Roth IRA, but only if my income is below a certain threshold? Why are married couples filing taxes separately basically not allowed to invest in a Roth IRA at all? And why do the "catch-up" provisions, which allow people to save even more in their IRAs, only kick in once they turn 50? Isn't that too late? Shouldn't we be encouraging people to save more when they are younger?
Uncle Sam has some good instincts, but he is like your worst boss or your most annoying aunt. He just can't stop meddling. He just can't leave people alone.
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Most 401(k) plans are mediocre, because employers run them. They have to protect themselves from costs and liabilities. So they limit the choices, and shunt you into one-size-fits-all investment plans. Yet amazingly they often include one of the riskiest investments you can make -- their own stock.
It makes no sense. If Uncle Sam wants me to save $17,000 off the top of my income, he should just let me do so, and get out of my way. And the "catch-up" provisions should affect everyone.
Click here to see the full list of Things I Hate about Tax Day.
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