Friday, April 22, 2011

It Costs Too Much To File Taxes

On 18 April 2011, the Wall Street Journal published an editorial called “The 30¢ Tax Premium,” indicating that for the average taxpayer, it costs him $1.30 to send the government $1.00 of tax revenue. This added cost comes from the need to pay the government $1.00 of tax plus the cost of his own time spent filing and complying with the tax code plus the tax collection costs of the IRS plus the tax compliance outlays that individuals and businesses pay to help them file their taxes.

I can identify with these facts, because in our personal 2010 tax returns to the Feds and to the State of Colorado, Nancy and I paid $6,313 while paying $261.75 to H & R Block for our filing costs. That amounts to paying 4% of our money trying to comply with the tax codes. Four percent does not seem like a lot of money; but, for us, $261 is a big bite. We would like to avoid that outlay of money if possible.

Some might say that we should have filed our tax returns by ourselves and not used H & R Block. Although our tax return was relatively simple, one of our 1099’s from an income source did not arrive in our mailbox until 15 April. This caused a last minute need to file an amended tax form, a much more complicated procedure than we are capable of performing. We are glad we used H & R Block, but it costs us too much to file our income tax reports.

What is the solution to this problem? A tax reform to a simple flat-rate tax with no deductions would significantly reduce the current complexity inherent in our progressive tax system, which is full of loopholes, exemptions and special interest carve-outs.

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