A Bodey in Motion

Building momentum, one step at a time

How I’d Change Income Taxes

First thing I'd do is change that logo. Make it happier. Drop the scales. Lose the eagle. Maybe put in a clown holding a bucket of money.Happy Income Tax day! I hope everyone reading this has filled out all of their forms, double-checked all of their numbers, and completed the filing process. You don’t want to be late. The IRS is not to be trifled with. I know I’d rather face a TSA pat-down.

If you’re all done, how did you make out? Most of you are probably receiving a refund. That’s pretty normal in this country. Still, there are always a bunch of us who owe, too. There’s nothing wrong with that, as long as you can pay.

This year, we owed less than $25. That was cool for us. It means we got to keep and use our money to spend, save, and meet our financial goals, all while withholding almost enough to satisfy the feds. We’d been tweaking our numbers for the last few years, but that was the first time that’d happened.

How about you? How many of you knew which side of that bright refund line you would be on? And if you did, did you know by how much? Down to the dollar?

Probably not. And, to be honest, I didn’t either. While we’ve been trying to shift our withholding based on each year’s paperwork, the truth is this year’s result was a happy accident. I don’t anticipate that we’ll be lucky enough to repeat that next year.

It’s rare for your average American family to be able to calculate their annual income tax burden. You can’t just lump every family making 55,000 a year into a pile and know exactly how much Uncle Sam is going to expect from them. There are so many other factors involved. Each one can adjust and tweak that number for each individual household, and they’re all buried within the convoluted, impenetrable, 73,954 page and growing Federal Income Tax code.

Simple, clear purpose and principles give rise to complex and intelligent behavior. Complex rules and regulations give rise to simple and stupid behavior.

Dee Hock

Complicated sets of rules always lead to problems. There are an assured few who will take the time to master the details, so they can game the system to the extreme benefit of themselves and others that they serve. People who enforce the rules will have varying interpretations of the finer (and greater) points, leading to uneven enforcement and a slow process of judgment. Certain groups will try to influence those who either write or interpret the rules to favor their members. (For example, larger firms might seek to remove smaller scale competition.) And all of this usually leads to more (and more complex) regulations to try to stop the misbehavior. It’s a maddening cycle.

Every system needs to be reset every so often. The income tax system isn’t any different. I think it’s time to clear out the clutter, sweep away the broken pieces, and get it back down to something manageable. And there are already hundreds of ideas for how to do this floating around out there.

Now, for individuals and families, I’m fond of the simplicity of a flat income tax. You make 55,000 a year. The income tax is 15%. Send the IRS a check for $8,250. Quick and easy, right?

But then the arguments start. Faults are found with any newly proposed system. Perfectionism becomes the enemy of innovation. No progress is made.

And if I were king for a day, or could wave a magic wand and change everything, I wouldn’t necessarily implement a flat tax, either. I might try something a little different. Call it the Stupid Simple Bodey Income Tax Idea. (Some of you will just want to use that first word, but whatever. At least I’m putting something out there.)

  • The first $30,000 of income would be taxed at a rate as close to zero as possible. I picked $30K as a rough representative of about 125% of the poverty line in America. I know that isn’t exact, but it’s the general idea that matters. I’m tempted to make the taxation rate zero at this level, but I’m affected by the argument that everyone who works should have some skin in the system. At most, I’m thinking 0.1% (i.e. $5,000 would pay $5). Anyway, moving on…
  • The next $120,000 of income would be taxed at 19%. Let me clarify what that means. As an individual, under 2013 federal income tax regulations in the US, given no other exceptions, if you make $36,250 in income you will pay $5,437.50 in income tax. If you earn $1 more, you’ll pay $9062.75. Over thirty-five-hundred-dollars for one stinking dollar. That’s a doozy of a tax hit, and it’s something that I’d want to avoid – especially at that income level. To change that, we should only tax each dollar earned over a certain level, not the entire wad. So, if you make $30,000, you’ll pay, at most, $30. If you earn $1 more, you’ll pay $30.19. However, if you earn $55,000, you’ll pay $4,780, and $100,000 income equals $13,330, and so on. Why 19%? I don’t know, I just picked a number that sounded like it might be a remarkably stable amount of revenue.
  • Everything over $150,000 of income would be taxed at 50%. Same deal. If you earn an annual income of $150,001, you’ll pay $22,830.50. Just 50 cents more than if you’d earned one dollar less. When you reach $200,000, though, you’d be paying $47,830, and $325,000 equals $110,330, and so on. 50% seems a reasonable rate.
  • No deductions or exemptions. It is what it is. What you owe is based on your income and nothing more. Taxes are about government revenue, not nudging the populace to behave a certain way, or favoring certain groups.
  • No withholding. Any system this simple can be calculated as each paycheck earned by the taxpayer comes in for the year. Write a check and send it in on tax day. Or quarterly. Or the first Monday in November every year. I’m open to ideas.
  • All income is taxed the same. Earned income. Interest. Dividends. Capital gains. Cash inheritance or other large monetary gifts. If money went into your pocket from any source, it goes into the “income” above and is calculated as above.
  • Everyone files as an individual. If you have a Social Security number, even if you didn’t earn one dollar of income, you need to file an income tax return. Parents can file the forms for their children, of course, and vice-versa.

Now, I know that this isn’t perfect. The numbers I used are undoubtedly off from where they need to be. Some sources of “income” are far more complicated than straight earned income. National tax-preparing firms wouldn’t be as necessary, and we would probably have to reduce the number of people working for the IRS, and all of those people in the unemployment line might cause a problem (maybe not).

Still, my family would actually be paying more income taxes under what’s detailed above, than we do under the current system. I’m not sure I mind that, though, because I could look at my paycheck and know how much I’d need to be setting aside to send in every month. (Hey. Income taxes as a monthly or quarterly coupon book, that’d be neat.) A simpler system might actually result in better revenue results. Who knows?

Once again, Happy Tax Day, and thanks for reading. This long post probably didn’t amount to much, and my thoughts on the subject are likely to change as continue to contemplate it, but those five of you masochistic enough to read every post probably found some enjoyment out of it. Sick freaks.

I’m not going to ask how you’d change the tax code. Or if you think taxes are high enough. Or anything else like that. I’ll probably just lock the comments down in fear. Writing about taxes, what was I thinking?

April 15, 2013 Posted by | Politics and Other Insects, Work and Money | , , , , , , , , , | Comments Off on How I’d Change Income Taxes