Thoughts on Taxes

Well, it's that time of year again—we're filling out our tax forms and getting things ready for the big send-off to the IRS.

Tax season is an interesting time of year, for many reasons. One of the things that I find most interesting about it is the chance to reflect on the tax code. We do our taxes by ourselves (mostly because I am a nerd and get some pleasure out of it), and running through all the documentation, one can't help but learn more about our nation's tax laws. If you've done your own taxes this year, too, you might have some observations. Here are some of the things I've noticed this year:

The tax code has an incredible number of loopholes. All the one-off rules (get more money back if you live in X location, deduct if you invest in Y but not if you invest in Z) mask the real issue (it's an income tax).

The tax code's complexity takes its toll on our citizenry. Filling out your own taxes is a good way to measure the tax-effectiveness of your habits, but the will to do this wanes in proportion to the difficulty of tax preparation. Reading through a bazillion rules (over fifty pages of instruction for the 1040, for example) can be difficult for some, and just about everyone finds it tedious. This results in a lower understanding of the tax system, which is a detriment for the following reason:

The one-off rules allow a degree of tax evasion. It's a legal amount, but deciding to buy into an investment because its returns are tax-free is making a decision to pay less taxes. Should we have that option? Some would say it's part of the game—a sort of price discrimination, if you will. After all, supermarkets give discounts to people willing to clip coupons. (That is, they charge more for the same product if you're not willing to clip coupons, so they don't have to give the low price to everyone.) Is this a larger-scale equivalent?

This "game" distracts from more productive things. If you're willing to do the legwork and figure out what is tax-advantaged, then you dodge the tax (or at least some part of it). It provides a reward for delving into the tax code for obscure exceptions. If we had a simple, easy, and universal tax, all this energy might go toward a better use.

For my part, I would rather do just about anything than muck about in the world of taxes.