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Tax Day: The Bureaucrat in the Bedroom

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I filed my tax return today. For several days I slaved over the computer, looking up records on the web, going over business spreadsheets, confirming bank account transactions, and entering hundreds of bits of data into TurboTax to figure out how much I had to pay the federal government to keep them from sending Cossacks to my door. In the end I had filled out 18 forms for a total of 31 pages to support government programs which I largely either don't support or don't benefit from or don't care about. It could be worse. General Electric filed a 24,000 page tax return this year.

Since I don't want to encourage government waste, I felt it was my patriotic duty to figure out every reasonable deduction I could take so that I didn't indulge our army of money-drunk bureaucrats any more than I absolutely had to. Thank god for TurboTax, because I remember what it was like a decade ago when I didn't have it. It meant spending enormously more time to produce much worse results. I now know the deductions I missed, the time I wasted, and the extra money I sent to Washington which I could have saved with the right tools and knowledge at my command.

Saving a little bit of money is great, but what TurboTax really saves me is time. A decade ago, when my business was a lot smaller than it is now, and my family was smaller too, the process of filling out my tax return was already pretty onerous. I remember that in 1998 (the last year I did it all by hand) it took me about two weeks working off and on to figure out the taxes and fill out all the forms. It was probably a total of at least 40 man-hours of work. Today, with a much more complex business and financial situation, my total tax preparation time was probably about a third of that. Looked at just in terms of time saved, TurboTax was worth the equivalent of at least $1200 in lost earnings.

Even with this near-magical bit of software helping me, I was once again stunned by the level of ridiculous record keeping and minute detail which has to be produced to file a tax return. I was looking at documents from three banks, two stock brokers, two employers, several state agencies, a couple of insurance companies, two schools, a dozen charities, and a mortgage lender. And that was just for the regular information for my family and not including anything for my business. It helped that a lot of the information could be found online. Even having the printed records in a file, it was often easier to get that same information from the web. It would have been even better had the information I downloaded direct to TurboTax from my stock broker not been obviously full of errors.

That's all stuff which everyone has to contend with. Imagine the additional complexity if you file Schedule C for a business. It's incredible. They want you to break down all the money you spend in a business based on how it was spent and what it was spent on, going into fairly exacting detail – we're talking a page of about 40 fields for different kinds of spending. The compensation for all this paperwork is that you then get to deduct a hell of a lot of money for things like business use of the home and depreciation on business-related assets. These are things so complex that I likely never would have even tried to do them before the advent of TurboTax, and even with it they're pretty daunting and I just enter the numbers and put my trust in the software. The end result is that you can take your profitable home business and offset enough of the profits with legitimate expenses that what's left over looks like the equivalent of a reasonable but not generous salary at a regular job.

The other nice thing about the computer age is that now I can actually provide real records of my expenses in a way which was only theoretical 20 years ago. I remember looking at shoe boxes full of business receipts and dreading an audit, which would be the final nail in the coffin of a business that hovered on the brink of profitability for several years as it started up. Now I just charge everything on a couple of business credit cards and have an exact record easily accessible of everything I bought.

All through this process I almost felt the looming presence of a faceless gray-suited bureaucrat with a calculator looking over my shoulder, making sure that I knew exactly when I'd bought the printer I was depreciating or how many miles I used my pickup in work-related travel. I even caught him going through the drawers in our bedroom when I got to Schedule B and began figuring out the value of the clothes, toys, and household items we'd donated to various charities. I think he wanted to make sure I really had given that lime green Ralph Lauren shirt my mother-in-law gave me for Christmas to a homeless shelter. I have to admit that it's a credit to the system and a benefit to society that we now do compulsively make sure that anything worth having gets donated to a charity rather than just thrown away. The other nice part is knowing that we had saved an awful lot of money from going to Washington by putting it into tax-protected retirement accounts. I could sense that faceless bureaucrat gnashing his teeth over that one.

Not everyone is as modern or as efficient as I am. According to figures from the National Taxpayers Union, US citizens spent 3.18 billion man hours filling out their tax returns. That's an average of three working days per tax payer. At the national average wage that has a value of almost $50 billion. That's a hell of a surcharge for the nation to pay just to have the privilege of doing a whole lot of paperwork for the government.

Today as I drove past the tax protesters at the local post office I reflected on the process and wondered why the hell our government has to put all of us through this every year. The whole system could easily be simplified. Taxes could be applied at a flat rate, making every aspect of the system simpler and getting rid of most deductions and exemptions. There's no reason for deductions or business expenses to be itemized at all. Since we have the records they can check them later if there are questions, but until then, why can't we just put down a total and leave it at that? This would save the vast majority of taxpayers a huge amount of paperwork. Or we could even go to a national sales-tax type system like the FairTax and do away with the paperwork altogether.

You know, I understand why we have government and why it needs money to operate, but on April 15 (or April 17 this year) I feel like I'd just as soon chuck the whole thing. Is it worth having a federal government if the only way to keep it going is through this torturous tug of war where they try to discourage and baffle me with red tape and I try to weave my way through it to hold onto enough money to keep my family fed and clothed? It seems utterly futile, because I do all this work and pay all this money and it seems more and more as if I have little or no say in what's done with that money. The least I deserve in respect for the effort and the dollars I put in is some direct accountability. How about this tax reform? I'll pay what they want and not complain about the paperwork if I can designate what programs they can and can't spend my money on. Give me a simple form listing the programs and I'll check off the ones I approve of. Now that's some paperwork I'd like to fill out.

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About Dave Nalle

  • Zedd

    Dave

    Great article! Viva la technology indeed!! Very balanced and funny in an uneasy stressful sort of way, as we can all identify with your assessment.

    While my taxes aren’t as complicated as yours since some changes have occurred in my life but still…..geeez!

    I realise that you must be joking about choosing the programs to designate your taxes to however in a world that rained snikers and cheese cakes, it would be wonderful.

  • http://www.elitebloggers.com Dave Nalle

    A fantasy, perhaps, but not a joke, Zedd. Imagine instead of the long tax form, you had a long list of government programs and you could choose NOT to let any of your money go to the war in Iraq or cricket roundups in Nebraska or the famous bridge to nowhere or stem cell research, etc.

    I bet that ultimately everything would get just the funding it deserves.

    Dave

  • Dr Dreadful

    And that’s without even getting started on your state taxes. I file the exact same numbers with the IRS and with the State of California, but get a refund from one and owe money to the other. I suspect that no-one could even begin to explain why. Oy, federalism.

    Since moving to the US I have gained enormous appreciation for the Pay As You Earn tax system in my native UK, where unless you’re self-employed or very well off you generally don’t have to file your own taxes. Your employer does it all for you. Now wouldn’t that be nice?

  • http://www.elitebloggers.com Dave Nalle

    I don’t have to deal with state taxes because I live in Texas where we have no state income tax, thank god. I can’t imagine living in a state where I had to pay even more and do even more paperwork. Texas raises its operating capital through real estate and sales taxes. I’d be perfectly happy if the feds found a way to do the same.

    Note the link attached to this article. It’s to the report from the bipartisan commission which concluded last year with a series of recommendations ranging from tax simplification to outright replacement of the tax system. The one thing they didn’t endorse was the current system. Prominent members of both parties agreed that it was a disaster.

    Dave

  • MBD

    “Today as I drove past the tax protesters at the local post office I reflected on the process and wondered why the hell our government has to put all of us through this every year.”

    And I reflect not on the process, but on the amount of the checks I write and wonder why the hell our government pisses away my hard-earned money and then goes across the pond and borrows hundreds of billions more.

    The process I protest is the pissing process.

  • http://www.elitebloggers.com Dave Nalle

    Take a look at the full text of the budget sometime. I’m working on an article on it. Anyone with half a spine could go through it and cut enough to cover the deficit and help pay down the debt and not touch a single essential program.

    Dave