I have a vision of hell. There are no pitchfork-wielding demons flitting about, no lava pools vomiting pitch, no goateed Lucifer polishing his horns. The devil is dressed in a button-down shirt and gray suit. He is a GS-12 official for the Internal Revenue Service (IRS) and his minions are tax preparers. When we meet our final reward, the punishment for our crimes is to undergo eternal audit.
I speak of this not because I personally have had a lamentable encounter with the tax system, but because my 81-year-old mother has. She reads the Wall Street Journal, studies Barron’s and passes the day with CNBC flickering in the background, yet she finds the tax code incomprehensible. So she pays roughly $900 a year for tax professionals to file her taxes for her. Two years ago, her certified public accountant made a mistake that would have cost her more than $800. This year, H&R Block made a careless error that would have cost her nearly $2,000.
The tax system that shuttles citizens between the IRS, the Virginia Department of Taxation and the tax preparers is so convoluted that my mother at one point was reduced to tears as she tried to get the mess straightened out. In a meeting with one sympathetic state tax official, she broke down. “Don’t feel badly, he told her. “I have people in here crying all the time.”
That’s what lovers of the leviathan state don’t get. The tax system doesn’t just take our money - it subjects us to endless torment.
According to a 2010 report by the National Taxpayer Advocate, an IRS ombudsman, taxpayers and businesses spend about 6.1 million hours a year on their taxes at a cost of $163 billion. That doesn’t include the economic cost of tax-avoidance behavior, in which taxpayers shift assets into less productive endeavors or take into account the dread, frustration and anger of the beleaguered citizen. The cost in anti-anxiety medications alone must be prohibitive.
President Obama wants to increase the tax on “the rich,” as if it were some monolithic class of oligarchs. But many of the so-called rich are just like Toots (yeah, I call my 81-year-old mother Toots) who was required to report a capital gain when Wyeth Pharmaceuticals was acquired by Pfizer in a stock-and-cash transaction last fall. If her holdings had been somewhat larger, she would have punched through the $250,000-a-year barrier that Mr. Obama lumps in with the “millionaires and billionaires” who can “afford to pay a little more.”
Actually, Toots can ill afford to pay even “a little” more because Federal Reserve policy, implemented with the full support of the Obama administration, has driven down the interest yield on her conservatively invested portfolio - all for the noble purpose of rebuilding the financial strength of the nation’s banks. Thus, Wall Street financiers, who actually are rich, pay themselves big bonuses for profits they did little to earn, while the elderly suffer a deteriorating standard of living.
More to the point, my mother’s capital “gain” was largely bogus. One thousand dollars of her original investment grew over 34 years to $7,400, seemingly a handsome profit. But thanks to inflation, $1,000 in 1976 dollars is worth about $3,800 today. In other words, slightly more than half of the “capital gain” was illusory, attributable to inflation. Adding insult to injury, that phantom gain pushed Toots into an income bracket that requires her to pay more for her pills this year under Medicare Part D and to pay a bigger contribution for Medicare Part B.
Toots doesn’t blame the government for the mistakes made by her tax preparers - not directly. But she can’t help but wonder if the exploding complexity of the tax code might have had something to do with them. Tax preparers are inundated during tax season with people trying to beat the April 15 filing deadline, she says, and their jobs get only more complicated with each passing year.
I often wonder why she experiences so many more of such torments than I do. Most likely, she says, it’s because I work for a living and don’t have the time to double-check behind everyone. If I paid more attention to my taxes, she insists, I’d be plucking out my eyeballs in frustration as well. I have to agree, I probably would.
James A. Bacon is author of “Boomergeddon” and publisher of the Bacon’s Rebellion blog.