Posted by: SWL | April 18, 2011

Happy Tax Day?

I became a fan of a flat rate federal income tax in half an hour. My family’s tax forms were done after a few hours of finding receipts and filling out forms for itemized deductions and interest income. Then we had to figure the amount of tax owed. Seemed simple enough: “If your taxable income is less than $100,000, you must use the Tax Table that begins on page 74 to figure your tax.” (Form 1040 instruction booklet)

But a couple of sentences later: “However, do not use the Tax Table . . . Use the worksheet on page 37 to figure the amount to enter . . . if . . . You reported qualified dividends on Form 1040, line 9b.”

Several years ago I received 13 shares of stock in my insurance company because of a change in the way they do business. I received a whopping $14.95 dividend on that stock for 2010. That amount is already added to the family income on Form 1040, but I was required to work through a 19 line worksheet to discover that we owe the same amount as we would if just using the Tax Table!

If the IRS can work out all the complicated math on its many forms, surely they could calculate the amount of dividends under which a person does not need to use “the worksheet on page 37”. Why force people to waste half an hour of their lives on unnecessary calculations?

In this particular case, the instructions are not clear enough. Many people probably stop reading after the first sentence I quoted. The exceptions are separated from that paragraph and look like they apply to other items. The IRS could make the instructions and the process easier for taxpayers if they tried.

I have not done any research into tax reform proposals yet. Right now I’m thinking a flat 10% with few, if any, deductions might work well. I’ve also heard a suggestion to abolish the federal income tax and institute a national sales tax from which food and health care would be exempt. But this can be unfair to poorer citizens: basic costs of living are similar for all people, so these costs take up a larger percentage of income at lower income levels.

I’m going to investigate the merits and problems with a flat rate tax. Even if that doesn’t turn out to be a good solution, I am going to keep petitioning my Congressional representatives to tackle tax reform.

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