Tuesday, May 5, 2009

What To Do About Our Tax System?!?

Most Americans have filed their taxes at this point. Depending on how good your accountant is dictates how much you paid in taxes to the government. Taxes are a pain for most Americans and for a good reason too. It causes a lot of concern – Did I fill everything correctly? Did I take all of my allowed deductions? Am I going to be audited by the KGB, opps, I mean the IRS (Infinitely Revolting Skunks)? What does this mean? Does it apply to me? Where’s the aspirin?!

There have been plenty of proposals suggested. I will cover two of those ideas in this posting. I’m interested in hearing back from our dear readers about their neat taxation ideas and their thoughts about these ideas. First, I want to establish that we need taxes for some services. Most people enjoy using paved roads for their vehicles, even if they have a 4x4. Most people cannot pay for private education for their child(ren). It might even be a good idea to pay our leaders, judges, prison officials and guards, etc. to keep our society functioning. So please, spare me the “Why do we need taxes at all?” bit, unless you plan on explaining how we function as a society. (Note: I will grant [and even cover in future postings] that there are some services that we, as a society, could do without.)

The latest idea is the fair tax. It’s the idea that we only pay taxes when we buy (consume) something. It seems like a great idea. If I’m not buying a BMW, I don’t need to pay the extra tax for it. Some things, like food and toilet paper (essentials), would continue to be not taxed at all.

However, can you imagine paying the fair tax on buying a $200K house? That’s right; a realtor doesn’t want you to think about that either. You can bet that they would be lobbying for an exemption. Car dealers would probably lobby for one as well. The bright side is once you have paid the note in full; the house is YOURS, just like your vehicle. You wouldn’t have to worry about the government taking your house for taxes they decide to increase because the economy is good.

Another issue with the fair tax is the issues of how would local and state governments prepare their budgets. They would not have the property tax to depend for their funding. I would argue that they could do their budgets in a manner similar to independent contractors and the self-employed.

The second idea that I will advance for discussion is the Chuck tax system. Chuck’s idea is that we mail in a post card every year with the amount of moneys we received through the year. Multiply the amount by three percent and send that in to the US Government. It’s so simple that everyone could do it. When I asked how would the state and local governments get their share of the booty, he said add on another one to two percent. I believe that most individuals would severely understate their income to make this system work. I also believe the governments just cannot manage their money correctly. Thus, this is the reason for increased property taxes and income taxes.

Any system that is chosen would still need people to administer and audit it. The government knows that people will not set aside money to pay their taxes once a year. Therefore, there would still be a need for paycheck deductions. However, we know that the system that we have is not working well (except for our CPAs and other tax “assisting” organizations, like H&R Block) for the common person. So the question is, what is the best tax solution for Americans?

Failing to plan IS planning to fail.

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