Hope springs eternal – after writing the IRS on #TaxDay for decades, I am still waiting for a response.

Former Defense Secretary Donald Rumsfeld filed for an extension on his taxes last week, like millions of other Americans. Unlike most, he included a personal note to declare his disgust with the incredibly complex U.S. tax system.

Excerpt:

"I remain mystified as to whether our tax returns and tax payments estimates are accurate," he wrote in a letter that he also tweeted. "The possession of a college degree, retention of an experienced tax accounting firm and earnest application have failed to provide confidence that my returns and payments are properly completed."

Comment: His tweet. I echo his view

Most don't pay Federal income taxes ... expect rich to pay more

Most Americans say the rich don't pay enough taxes

Excerpt:

The poll found that many Americans believe rich people to be intelligent and hardworking but also greedy and less honest than the average American. Nearly six in 10, or 58 percent, say the rich don't pay enough in taxes, while 26 percent believe the rich pay their fair share and 8 percent say they pay too much. Even among those who describe themselves as "upper class" or "upper middle class," more than half — or 52 percent — said upper-income Americans don't pay enough in taxes; only 10 percent said they paid too much. This upper tier was more likely to say they are more financially secure now than 10 years ago — 62 percent, compared to 44 percent for those who identified themselves as middle class and 29 percent for the lower class. They are less likely to report problems in paying rent or mortgage, losing a job, paying for medical care or other bills and cutting back on household expenses.

Is it true that only 53 percent of Americans pay income tax?

 Excerpt:

In 2009, according to a memo from the Joint Committee on Taxation, a bi-partisan Congressional committee, only 49 percent of Americans owed money on their Federal income tax returns. So yes, it's true that more than half of all Americans paid no Federal income tax in the tax year 2009, and the number of people who did pay taxes was even lower -- 51 percent, not 53 percent. For tax year 2011, the non-partisan Tax Policy Center estimates that only 54 percent of Americans will pay Federal income tax.

Comment: I pay taxes. And I think I could pay more taxes. But there is a disconnect between these facts: 46% don't pay Federal income taxes ....and 58% say the rich don't pay enough in taxes. Jim Peet's taxes proposals:

• End corporate income taxes altogether (not property taxes!). Every penny of paid corporate income tax is just filtered into the costs of the product anyway. It's a hidden tax. Corporate income taxes encourage wasteful deductions (like a company buying a suite at a sport's stadium)
• Tax all income the same: Dividends, capital gains, earned income
• Eliminate deductions: Mortgage interest for one
• Have 3 or 4 simple brackets: 5%, 10%, 15%, 20% (and these are not cast in concrete). But everyone should pay some federal income tax.
• Eliminate the AMT
• Eliminate tax free medical benefits but provide every worker a $ 7,000 tax credit for health insurance paid. Families and children more
• Match the start of medicare to the normal social security retirement age.
• Phase in an older start for medicare and social security (say to 67)
• Make medicare like an HSA
• Simplify the code! And freeze it for 5 years before changing it

Testing the hypothesis: The wealthy don't pay enough taxes

Obama SOTU 2010 redux: "If we truly care about our deficit, we simply cannot afford a permanent extension of the tax cuts for the wealthiest 2 percent of Americans." Top 1% already pay more than bottom 95%

Excerpts:

The rich in this country pay far more than their fair share. And not only does bottom 47% of taxpayers pay no federal income tax, but the bottom 40% GET MONEY BACK! The top 5% pay about 60% of the federal tax bill. It's now gotten so bad, so unfair, that the top 1% pay more in federal taxes than the bottom 95%.

...

Let that sink in for a moment. From a prior post: Fleeced: The upper 1% earned 19.6% of total income before tax, and paid 41% of the individual federal income tax. "No other major country is so dependent on so few taxpayers"

As for Obama’s assertion that fleecing the top 2% is “about promoting America’s success,” I have two points of fact to refute any such notion. 1) Taxing that 2% a bit more will make a negligible impact on the record deficits that Obama is racking up. The tax increases will amount to tens of $billions in relation to a deficit that will be a record $1.5 TRILLION (or $1,500 Billion). But more importantly 2) as a matter of historical fact, each $1 in higher taxes results in $1.17 of new spending.

Comment: Worthwhile read with charts

Federal Tax Code: KJV x 5

Tax System: Too Complex To Be Constitutional?

Excerpt:

Douglas Shulman says he uses a hired tax preparer because the U.S. tax code is so complex. That's a bad sign. He's the I.R.S. commissioner.

The tax system has clearly gotten too complicated. The code itself holds about 3.8 million words, nearly five times as many as the King James Bible. There's also a much larger body of regulations, which carry the weight of law, written by the Internal Revenue Service, along with court precedents going back at least a century. Add to that the IRS's published opinions on its regulations.

Even if someone could read all of it, the rules would be obsolete by the time he finished. There have been more than 4,400 changes to the tax code over the past decade, or more than one a day.

Comment: Where's Steve Forbes (a fairer flatter tax!) when we need him!

Be thankful I don't take it all. 'Cause I’m the taxman

UK Proposes All Paychecks Go to the State First

Excerpt:

The UK's tax collection agency is putting forth a proposal that all employers send employee paychecks to the government, after which the government would deduct what it deems as the appropriate tax and pay the employees by bank transfer.

The proposal by Her Majesty's Revenue and Customs (HMRC) stresses the need for employers to provide real-time information to the government so that it can monitor all payments and make a better assessment of whether the correct tax is being paid.

Currently employers withhold tax and pay the government, providing information at the end of the year, a system know as Pay as You Earn (PAYE). There is no option for those employees to refuse withholding and individually file a tax return at the end of the year.

If the real-time information plan works, it further proposes that employers hand over employee salaries to the government first.

"The next step could be to use (real-time) information as the basis for centralizing the calculation and deduction of tax," HMRC said in a July discussion paper.

HMRC described the plan as "radical" as it would be a huge change from the current system that has been largely unchanged for 66 years.

Comment: Consider the lyrics of the Taxman!

Spreading the tax pain around

Comment: Two articles on taxes.

The five dumbest parts of the U.S. tax code

The List:

1. Ethanol credits: Ethanol was pitched as a kind of energy panacea back when President George W. Bush signed the Energy Policy Act of 2005, mandating an increase in the use of the corn-derived biofuel. Generous credits doled out to manufacturers and producers accelerated industry’s initial embrace of ethanol, but the skeptics have gained the upper hand in this argument. Ethanol production has been fingered as one of the culprits in the spike in food prices a couple of years ago (tariffs kept the United States from using sugarcane-based ethanol from Latin America), and it turns out that making the stuff consumes a lot of the nonrenewable fuel its use was supposed to conserve. Nonetheless, alcohol-fuel credits will burn through some $12 billion between 2007 and next year.
   
2. Exemption for inherited stock-gains: Say, like Forrest Gump’s buddy Lieutenant Dan, you had the foresight to buy Apple stock when it went public in 1980 at $22 a share. If you died last week when the stock was at $230.90 a share, whoever inherited it wouldn’t have to pay capital gains on the increase, even if they turned around and sold it on the way to your funeral. To economists, this makes no sense, because if you’d sold that stock the day before your death, you would have had to pay capital gains. Tax planners even encourage elderly investors not to sell stock solely for the tax benefit it confers to their heirs.
   
   This exemption isn’t chump change; it’s predicted to total about $280 billion between 2011 and 2015. Proponents of the exemption counter with that the estate tax takes care of these windfalls; in reality, though, the estate-tax exemption is large enough that it misses a lot of these capital gains.
   
3. Mortgage-interest deduction: This one is almost universally decried by economists. The bigger the homeowner’s mortgage, the bigger the deduction. This has the effect both of tacitly encouraging people to buy as much (or more) house than they can possibly afford, and it rewards McMansion owners far more richly than it does those who own more modest abodes. The wealthy get a windfall, while renters, whose median income is half that of homeowners, according to 2007 Census Bureau data, aren’t even invited to the party. From a macro standpoint, economists also fret that the deduction leads people to invest more heavily in housing than they otherwise would at the expense of other sectors of the economy.
   
4. Exemption on employer-provided health insurance: This one is not without its share of controversy, as evident by the term “Cadillac plans” and the intensely heated rhetoric around the health care reform bill. Why would anyone want to tax what we have collectively come to think of as a national right?
   
   For starters, there’s a ton of cash at stake. This exemption is the largest by far in the federal tax code. According to White House budget projections, it’s going to cost the government more than a trillion dollars between 2011 and 2015 alone. (While the new health care plan does call for taxing some employer-provided insurance, it doesn’t kick in until 2018 and won’t apply to all plans.)
   
5. Municipal-bond-interest exclusion: Unlike the mortgage interest or health care plan exemptions, the big cheerleaders of this loophole are state and local governments. Groups like the Government Finance Officers Association hate the idea of letting the federal government tax municipal bonds, and so far their view has prevailed. Unfortunately, the perception of big savings is a shell game that benefits bondholders more than the local municipality, while the federal government takes it on the chin.
   

Comments (on just one of these): The Federal government should eliminate the employer-provided health insurance exemption. And the provide every American a $ 5000 credit (really amount to be determined!) to buy one's own health insurance. It would level the playing field and make the system more efficient. Of course Obamacare cancels this idea!

For Top Earners, Tax Bite Is Likely to Be Worst

Excerpt:

A January study by the nonpartisan Tax Policy Center provides the worst-case scenario. It found that to reduce the federal budget deficit to a sustainable 3% of gross domestic product, the government would have to find an average of about half a trillion dollars each year in new revenue (or spending cuts). That's roughly how much the federal government spends now on the giant Medicare program.

To cover that amount through tax increases on the top two brackets—roughly, families with more than $209,000 in taxable income—top rates would have to go from the current 33% and 35% to 72.4% and 76.8%, the study found.

Comments: Check out the chart with this article. The net of it is that "the rich" are already paying a lot of taxes. The top 10% of wage earners are paying 73% of the taxes. It will be hard to squeeze them more. A V.A.T. tax just buries taxes into all products and services ... raising prices and in effect just devalues the purchasing power of the dollar.

Coincidence?

Nearly half of US households escape fed income tax


Americans Split on Whether Their Income Taxes Are Too High



Phyllis Schlafly: America Becomes a Two-Class Society

Excerpt:

Income tax day, April 15, 2010, now divides Americans into two almost equal classes: those who pay for the services provided by government and the freeloaders. The percentage of Americans who will pay no federal income taxes at all for 2009 has risen to 47 percent.

That isn't the worst of it. The bottom 40 percent not only pay no income tax, but the government sends them cash or benefits financed by the taxes dutifully paid by those who do pay income tax.

The outright cash handouts include the Earned Income Tax Credit (EITC), which can amount to as much as $5,657 a year to low-income families. Other financial benefits can include child tax credits, welfare, food stamps, WIC (Women, Infants, Children), housing subsidies, unemployment benefits, Medicaid, S-CHIP and other programs.

This is both a massive transfer of wealth and a soak-the-rich racket. The top 10 percent pay 73 percent of the income taxes collected by the federal government.

....

Although all wage-earners help fund their own Social Security and Medicare benefits, only federal income taxpayers pay the costs of running the federal government, and are responsible for paying off our $12.8 trillion national debt and for bailing out Social Security, Medicare, and Fannie and Freddie when they collapse.

Comment: I'm one who pays taxes. I think the amount we pay is fair!

The IRS plans more audits

How to Fight the IRS

Excerpt:

With Washington searching for ways to cut the budget deficit, IRS officials face intense pressure to collect more revenue. The agency plans more audits, especially of taxpayers in high brackets or those who are self-employed and deal in large amounts of cash. The IRS also has turned up the heat in such areas as offshore tax evasion, including undisclosed foreign bank accounts.

If you become an IRS target, what should you do?

For many people, the answer may seem simple: Surrender as quickly as possible, no matter how good a case you have.

Even if you are sure you are right and have all the records to prove it, fighting the IRS, one of the most powerful government bureaucracies on the planet, can be the ultimate nightmare. Seemingly routine struggles can drag on for years, leading to endless frustration and sleepless nights. Even those who eventually triumph may wonder if the fight was worth all the time, effort and expense.

But if you're ready for the challenge, there are many smart ways to fight back—and win. Start by keeping comprehensive, well-organized documents. Always scour the IRS's claims for mistakes. Don't get discouraged when dealing with tax officials. If you are convinced you are correct, consider pushing your case up the chain of command. Try the IRS appeals division. You may also get valuable help from the IRS's taxpayer advocate service. Or go to court.

At the same time, there are some classically dumb mistakes to avoid—everything from simply ignoring the IRS to arguing that it somehow is voluntary to pay federal income tax.

Here are some combat tips from lawyers, accountants and "enrolled agents," who are federally licensed tax experts authorized to represent taxpayers at all levels of the IRS.

Comment: Full article has tips. We were contacted by the IRS once for a clarification (this was back in about 1985). We had made a mistake on our return. I hired a tax accountant to file an amended return. We had to pay out a small amount plus a penalty.

50 percent of people who are getting something for nothing

Nearly half of US households escape fed income tax

Excerpt:

Tax Day is a dreaded deadline for millions, but for nearly half of U.S. households it's simply somebody else's problem.

About 47 percent will pay no federal income taxes at all for 2009. Either their incomes were too low, or they qualified for enough credits, deductions and exemptions to eliminate their liability. That's according to projections by the Tax Policy Center, a Washington research organization.

Most people still are required to file returns by the April 15 deadline. The penalty for skipping it is limited to the amount of taxes owed, but it's still almost always better to file: That's the only way to get a refund of all the income taxes withheld by employers.

In recent years, credits for low- and middle-income families have grown so much that a family of four making as much as $50,000 will owe no federal income tax for 2009, as long as there are two children younger than 17, according to a separate analysis by the consulting firm Deloitte Tax.

Tax cuts enacted in the past decade have been generous to wealthy taxpayers, too, making them a target for President Barack Obama and Democrats in Congress. Less noticed were tax cuts for low- and middle-income families, which were expanded when Obama signed the massive economic recovery package last year.

The result is a tax system that exempts almost half the country from paying for programs that benefit everyone, including national defense, public safety, infrastructure and education. It is a system in which the top 10 percent of earners -- households making an average of $366,400 in 2006 -- paid about 73 percent of the income taxes collected by the federal government.

The bottom 40 percent, on average, make a profit from the federal income tax, meaning they get more money in tax credits than they would otherwise owe in taxes. For those people, the government sends them a payment.

"We have 50 percent of people who are getting something for nothing," said Curtis Dubay, senior tax policy analyst at the Heritage Foundation.

Comment: You have to wonder if this is good for our democracy!