In Turbo Tax We Trust?

A couple of President Obama's cabinet nominations have recently run into tax problems. Secretary of the Treasure Geithner was confirmed despite the fact that he had unpaid self-employment taxes. Secretary of Health and Human Services nominee Tom Daschle recently ammended his tax returns to report over $100,000 in unpaid taxes.

The public will never really know if these were unintentional mistakes or purposeful acts. In either case, they are a call to action. Clearly if a cabinet nominee intentionally attempted to evade taxes, his (or her) nomination should be retracted.

So what if it was an honest mistake? In some ways, an honest mistake actually calls for more drastic measures. Secretary Geithner has extensive financial experience. Not only was the President of the Federal Reserve Bank of New York, but he also served in the Clinton administration as the deputy assistant secretary for international monetary and financial policy. Geithner also worked at the International Monetary Fund.

Tom Daschle served as the Senator from South Dakota for eighteen years, and was twice the majority leader of the U.S. Senate. As a Senator, he spent time on the Finance Committee. His role as Senate leader meant that he was very involved in determining the federal budget, including tax policy.

So here we have two men who have a level of financial sophistication head and shoulders above the average American. They have both wielded influence over U.S. financial policy. So, if they honestly made a mistake or unintentionally failed to pay the proper amount of taxes, what does it say about our system? Is it so complex that even individuals with the experience of Geithner and Daschle often get it wrong? If so, then what hope do the rest of us have to get it right? In Turbo Tax we trust?

Maybe this should be a call to seriously reform our tax structure. Let's face it, the tax structure is not complicated because it has to be. Its complicated because our Congress uses it to reward and punish certain behaviors. You might give your child a cookie for cleaning her room, while the government provides a tax break if you purchase a home. Both rewards are to encourage the behavior that the authority deems desirable.

My opinion is that we should either get rid of Daschle and Geithner or our tax system. The later would certainly change Washington.

Higher Taxes patriotic

Joe Biden recently opined that it was patriotic for wealthier people to pay more in taxes. I am sure that there are quite a few people who echo this believe. Personally, I think his statement is a load of rubbish for a lot of reasons.

First, he doesn't believe it himself. Its simple class warfare. How do I know? If paying more taxes is patriotic, then is Sentator Biden voluntarily paying more taxes than required? Its perfectly legal. The government will gladly accept over payments of taxes. Just send the IRS some extra cash and a note saying "Just doing my patriotic duty."

As a U.S. Senator, Mr. Biden makes approximately $169,300 per year. Most people would consider someone making that much fairly wealthy. So does this wealthy patriot pay extra? My guess is that he doesn't. In fact he probably has someone prepare his taxes and expects them to find him all the legal deductions and credits available. So if its so patriotic, and you are a patriot Mr. Biden, why don't you pay more.

Aside from the hypocrisy of the statement, I think the very premise is deeply flawed in a few ways. I don't accept that the rich should pay more as a self-evident truth. There are certainly reasonable arguments for it. Why shouldn't someone who is able to pay more bear more of the burden? After all, they are benefiting more financially from the opportunities presented by our great country than many of their poorer brethren.

At the same time, however, they often contribute much more. A person who starts a business often provides jobs to other citizens. So while they might get more out of America financially, they give back by helping others get ahead. Also, if the tax burden becomes too great, one of two things can happen. One is that they might do less. How hard are you going to work to earn an extra dollar if seventy-five cents of it is going to the government? Maybe a bit less than if you kept the majority of that dollar. The other problem is that wealthier people are much better at legally avoiding taxes all together. At a certain point, an individual may takes steps to avoid taxes all together by moving money off shore or constructing elaborate tax avoidance schemes.



What it really should come down to is sound financial policy. Truthfully, I'm not concerned about the philosophical right or wrong of it. To me, tax rate should be about our economic growth and government revenue. How do we keep our country growing, while at the same time collecting enough revenue to suit the common purpose?



There is certainly room for wealthier Americans to pay more than their less privileged brothers. They already do. In 2005, the wealthiest one percent of people paid thirty-nine percent of the taxes. Even more starkly put, the bottom fifty percent of tax payers in the country combined to pay less taxes than Exxon. That's right, one company paid more in taxes than the taxes collected for the bottom fifty percent of Americans.

Is there some room to change the tax rates for richer Americans? There probably is room for some changes. Small increase in taxes will probably have a small impact on people's behavior. Are you going to move assets and unleash the horde of accountants and lawyers for a one percent increase in taxes? Much less likely than for a twenty-five percent increase.

You know, I would perhaps be sympathetic to Biden's argument if we had a government that was exercising physical restraint, but was unable to raise the money needed to provide vital services, then perhaps it would be patriotic. People who bought war bonds were patriotic. The government needed the money then. Now, government spending is completely out of control.