Thursday, June 05, 2008

Posted by Dr Fro 3:11 PM
As a CPA, I get asked a lot of questions about taxes. I don't do taxes for a living, but that deters few from asking.

With this being an election year, I am hearing more and more about taxes. Sure, it isn't a headliner like Iraq or oil, but it is up there. Anyway, I was hoping that you would be interested in hearing what old Phreux thought about taxes. I don't mean to point you toward one candidate or the other. Rather, I just want to help you in your thought process - help make sure your decisions are informed.

First of all, people are way too focused on income taxes in the first place. Income taxes are only one of the taxes we pay. We pay sales taxes, property taxes, payroll taxes…the list goes on. If you want to have an informed discussion about taxes - how they affect us, what they are spent on, what level is the right level - you really need to discuss the system(s) in its entirety. There is so much angst against the IRS, yet so little at other taxing authorities.

Even still, when you consider all taxes in the U.S., you pay a crapload less tax than you do in most other developed countries. Take the U.K. Sales tax there (VAT) runs at 17.5%. Income taxes are higher (I paid about twice as much as a % of AGI). The marginal rates are similar, but without deductions, exemptions, etc, I paid a lot more taxes. Anyway, my point is that before you complain that taxes are too high, look around. It costs a lot of money to run a country and the U.S. is doing it for cheaper than the competition. We are kinda like the Southwest Airlines of developed countries. So, just know that nobody outside the U.S. is feeling sorry for you when you complain that your taxes are too high. Venezuela has lower taxes, maybe you should move there.

A common complaint is about the complexity of Internal Revenue Code. My ears are deaf to this moaning. Who cares if the Code is a billion pages long? Personally, I do a 1040, a Schedule A and a couple other schedules. I do it on Turbo Tax and it takes a couple hours. Who cares if there is a is a tax credit for midgets or a special tax rate for money made on windmills? There may be a billion pages of code, but only a little bit of it relates to you and me. And as for the guys to whom the billion pages does relate? They can afford a tax department that gets them the midget credit. Really, if you can't figure out your 1040, then you are a mental midget.

Now here is my biggest beet with political dialogue on taxes….taxes are a red herring. If you are president for four years and get rid of all taxes without cutting spending, then I come in and put taxes at double what they were to start to cover all the spending that happened, am I the bad guy? Look, taxes are a timing issue - the real issue is spending. Any increase or decrease in taxes is meaningless unless there is a corresponding change in what is spent. All you do by reducing taxes is increase the deficit, which has to be paid off eventually - through taxes! Reducing taxes without reducing spending would be like switching from spending cash on everything to using your credit card to buy everything. So, enough already with campaign promises about taxes - tell me how much you are going to spend over the next 8 years.

This is my second biggest pet peeve on taxes. I can tell it best by example. A dude on TV was explaining how socialized medicine in the U.S. would cost in total and then he divided it by the population and said that it would "cost" each of us $x. Here is what bugs me. Things don't go from free to costing something anymore than they go from costing something to free. The dude left out an important number: what we currently pay in health insurance. Now, I don't care one way or another about socialized medicine. My point is that things cost what they cost, and whether I pay for it as a payroll deductions for health insurance or through higher taxes, I am paying for it either way. Maybe you prefer paying insurance premiums over paying taxes. I don't care. But I do care the math be complete if making a point. I am not saying that what I would pay would be perfectly proportionate to what I would receive (in a progressive tax structure, this is not the intention), but the more you get from the government, the less you need to get yourself.

Here is my last complaint. I hate people that just categorically want "lower taxes". They aren't ever satisfied with the current level of taxes, they always want less. Taken to an extreme, they wouldn't be happy unless taxes were zero. Heck, even then they'd complain that they don't get a check from the government ala Alaska or Saudi Arabia. If I ran for president, I could probably lock up 50 million lemmings by just hypnotizing them with the promise of lower taxes. How about this? Determine what you think the appropriate level of taxes are, complain when they are higher than that level as well as when they are lower than that level. The not-very-thought-out-at-all stance of "I always want lower taxes" just shows you aren't very bright. If we lower taxes any more, we'll have to run a deficit, pull out troops from Iraq, have failing social systems, have terrible disaster recovery when natural disasters strike and have to borrow money from China. Now, that would suck, wouldn't it?

1 Comment(s):

Posted by Anonymous Anonymous, at 1:10 PM, June 06, 2008  

well put. bravo.



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