Tax Frustrations

by Will on September 8, 2010

I spent some time helping my wonderful girlfriend to figure what her tax liability was likely to be this year. When you have self-employed income, doing your taxes is a viscerally unpleasant task.

One thing that annoys me is how little effort is made to explain to the public how the tax code works. The idea of marginal rates in particular slips through the cracks. It is common to hear people say things like, “its outrageous that the most productive people have to pay 35 percent of their money to the government!” That’s a deeply misleading statement, because 35 percent is only the rate that those people pay on income above $307 thousand. And that’s only on income that they report after making deductions. Our system of deductions and credits allows people with money to employ all sorts of accounting gimmicks to make their income look lower than it is. The actual percentage of high earners’ income that they pay to the IRS, at the end of the day, is less than 20 percent, which is not much more than their middle-class neighbors are paying.

It’s also frustrating to me how our difficult, unpleasantly complex system makes most people’s experience with taxes a bad one, making them feel exploited and hostile. When I lived in France, I paid a much higher tax rate than I do here. But it just got taken out of my paycheck automatically and I never had to file anything about my income, so I didn’t notice it and didn’t resent it much, even though I didn’t make a lot. We have automatic withholding here, but then people have to file anyway to take advantage of the system’s plethora of deductions, and either they have to pay an accountant or have the harrowing experience of doing it themselves. I suspect that this fact at least partially explains why it’s possible for anti-tax rhetoric to have so much more resonance here.

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