I just spent a good amount of time and some money dealing with income taxes for a nonprofit corporation, a for-profit corporation, and our personal income taxes. The personal income taxes included federal returns for both the USA and another country and for the state of Colorado (with a part-year resident return). I survived all that OK, but it is anoying to me just how complex and tough to decipher all of these tax forms and tax laws have become. It has been said that the power to tax is the power to destroy. It is common knowledge that the power to tax is the power to exert a great deal of influence.

Taxes are a tough problem to solve. I recognize that any legitimate government, if it is to survive and provide services for its people, must have some way to fund its operations. The fundamental problem with governments and taxation is that they often operate without income limits. If they run short, they can just raise taxes some more. In the case of national governments, they can also print more money, which essentially has the same effect, by diluting the value of the money that the citizens already have. Some states in the USA have passed constitutional ammendments that limit the amount of taxes that the state government can raise, and how much they can spend. The USA federal government has no such limit, at least not yet. Over time, taxes as a percentage of the income of the citizens tends to increase. This is a bad thing.

It is not just the amount of taxes that tends to increase over time. It is the complexity of the way we are taxed that tends to increase, as well. The complexity comes from three main sources: (1) the desire to be "fair" and burden the poor less than the rich, (2) the desire to use taxes as a powerful tool for social change, and (3) to solicit the general public for additional funds or choices as to how certain funds should be allocated.

To be less burdensome to the poor, and more of a burden to the rich (who presumably can handle it better), we make up tax tables or charts such that people with lower incomes pay a lower percentage of their income than people with higher incomes. Just how much money someone should be able to make without being taxed, and just what rates are appropriate at what income levels is a subject of debate in congress, and generally results in a combination of deductions for dependents and tax tables with rates that rise with income, but (hopefully) cap out at some maximum. The social change part of taxes results in the greatest complexity, and complexity that tends to grow with time. This is where deductions for things that we value highly as a culture (like home ownership and the amount of interest we spend to attain it), and things we want to encourage (like greater use of solar and wind power) come into play. Some deductions and exemptions exist to correct perceived unfairness in terms of taxing income that was used to pay for __________ (insert one of dozens of things here, like taxes paid to other government entities, medical bills, college tuition, etc.). Sometimes taxes are used to punish or discourage something that some congressmen don't like, such as churches and other religious organizations engaging in political free speech. It seems that with each session of congress, the tax law (and the resulting implementing IRS regulations) grows more complex due to some bill or another passed that year. However, it is rare for congress to take the time to attempt to clean house and simplify the current tax law. After each congress has had its say since the USA federal income tax was established in 1913, the IRS regulations are a very bulky mess, indeed.

Just how bad is the tax complexity? It is so bad that for my 2006 taxes, I found that H & R Block Taxcut software just plain could not handle my tax situation. It was too complex for the programming team of a company with a good reputation and lots of experience to pull off, even with their "premium" product. It just flat out didn't work, and their technical support department couldn't help. (The higher-priced Intuit TurboTax did work, though.) May God help those who try to do it manually!

I believe that I have done due diligence to ensure that we are in full compliance with the tax laws of the appropriate governments, but I'm left with the nagging feeling that reasonable interpretations of the tax regulations (or perhaps unreasonable positions held by government officials) could possibly result in tax liabilities more or less than what I came up with... just because of the excessive complexity.

I am in favor of scrapping the whole USA income tax system, and replacing it with a uniform national sales tax or value added tax, with food and housing purchases being exempt. It would be much simpler, for sure. It would be progressive, in that the poor (who spend a greater proportion of their income on food and housing) would be taxed at a lower effective rate. It would encourage savings without having to have special retirement account rules. It would get the government out of the business of deciding which church or religious organizations deserve tax breaks—and remove the free speech tax. With fewer exceptions, the over-all rate could be much lower, making the loss of those exceptions irrelevant for most people. Do I expect to see such legislation passed? No, but if it did, I would be happy.