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COMMENTARY:

Thinking About Taxes

Social engineering, though often justifiable, has unfortunately resulted in our voluminous and confusing tax code.

by Fred Cederholm
There is a direct correlation between US wars and significant increases in income taxes levied, though sometimes these increases are deferred by running up the national debt first.
I’ve been thinking about taxes. Actually I’ve been thinking about the American Revolution, tax freedom day on July 3, wars, 1913 and the 16th Amendment, social engineering, and the need for real tax reform. This nation revolted and broke away from motherland England because of taxes. Ok, there were justifications like “don’t tread on us,” but the real battle cry was “no taxation without representation!”

You see on Wednesday April 15, our federal and state tax returns (in the 41 states which levy income taxes) are due. Corporations were dinged on March 15. In Illinois, real estate taxes are payable in mid June and September. Such taxes which fund municipalities, counties, and local units like schools, libraries, fire districts, parks, etc. are levied via these assessments. Taxes paid on food, clothing, gasoline, utilities, booze, tobacco, and just about all other items consumed in the business of living are extracted every time we take out our billfolds, checkbooks, or credit cards. I’d be hard pressed to come up with one item bought or consumed where purchase prices do not exact taxes as an add-on or are some part of the prices paid. TH*NK about it!

Presently, “tax independence day” is now July 3rd. For those working for a wage, all income earned up until July 3rd is paid to some taxing entity in one form of tax levy, or another. This equates to roughly 51% of wages! Our founding fathers would be appalled by this reality of 2009. They revolted in 1776 for far less than that! True, we now have taxation WITH representation; but do elected officials truly honor our wishes on the taxes they require us to pay? I sincerely doubt it.

In preparation for this column, I did a brief review of US income tax history. It was a real eye opener. The first income tax was levied in 1862 to underwrite the so-called HUGE costs of the Civil War. This relatively miniscule levy of 1% on incomes over $800 wasn’t permanent and was repealed in 1872. A later tax enacted in 1894 was deemed unconstitutional in 1895 because it was not apportioned to the population of each state. The 16th Amendment was drafted to remedy the constitutional contradiction and became law when ratified by the 36th state (Wyoming) in 1913.

Initially, those meeting that taxable hurdle by having a net income exceeding $3,000 paid 1% while those who made over $500,000 - regarded as a criminally obscene amount of income in 1913 - paid 6%. If that still held true using some fast and dirty computational roll forwards (given that the dollar has lost 97% of its purchasing power) those now earning in excess of $16.6 MILLION would pay $1 MILLION – not the roughly $5,785,000 that they would owe using the current 2008 tax computation worksheet. Such may not be a fair (or valid) comparison because the limited tax law of 1913 is a far cry from the thousands of pages of today’s tax code. What we have here now can only be characterized by the words “a crime against humanity - an abomination!”

A goodly number of Americans will pay way more in taxes than they should. Many who prepare their own returns should hire professional help. Instructions for the tax forms and the core tax code behind them are way too complicated for those not having the necessary formal training. It is already noted that a majority of mistakes made will involve realizing the full recovery rebate credit, properly deducting job search expenses, properly claiming unemployment benefit income, deducting IRA contributions, and deducting the appropriate amount of investment portfolio losses.

This present albatross on the backs of the American people and business is the legacy of our many intervening wars and the social engineering motivating our voluminous tax code. Warfare generates tax increases. There is a direct correlation between the US at war and significant increases in income taxes levied. The politics of rewarding and punishing social behavior has also led to our current tax mess. Last Fall’s elections were waged under the banner of recessionary pain and the desire for fashionable “green” energy reforms. Have we really seen relief in our filings due on Wednesday? Enough already!

I’m Fred Cederholm and I’ve been thinking. You should be thinking, too.


Copyright 2008 Questions, Inc. All rights reserved. Fred Cederholm is a CPA/CFE, a forensic accountant, and writer. He is a graduate of the University of Illinois (B.A., M.A. and M.A.S.). He can be reached at asklet@rochelle.net.


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This story was published on April 13, 2009.