Random Thoughts on Our Tax System

Before proceeding, a brief public service announcement:

If you’re reading this, and still haven’t filed your federal income tax return for 2006, YOU’RE NEARLY LATE!! Virginia’s deadline of 1 May is still coming.

By now, it’s a truism that our tax system is too complicated, and our taxes are too high. Of course, as it is Spring, most of us focus upon state and federal income taxes.

Let us focus, then, on a few brief points about our wonderful system by which the federal government bleeds us of 24% of our national income.

First, let’s consider the Marriage Tax. This is the penalty in additional taxes that many us pay because we choose to get married, rather than just shacking up. Just for grins, after I filed my federal income tax, I figured out the Young family marriage penalty for 1998, the depressing amount of approximately $2000.

Anyone out there still fantasize that our tax system isn’t “anti-family”?

Well, wait one minute. The marriage penalty was abolished by the Bush tax cuts in the first term of the Bush Administration. But don't get too used to that long-needed and sensible reform. It's coming back if Democrats in Congress have their way, as it is scheduled to expire in just a few years. It's hardly surprising that a political party that has "gone Brokeback" and doesn't even understand the word "marriage" would penalize its practitioners.

Next, let’s consider wage withholding. Wage withholding is the date rape drug of the tax system, in the words of a Libertarian group on Michigan. Understanding that something never seen is rarely missed, the Federal government started in World War II to require employers to withhold a certain amount of our income from each paycheck, so that we never see the money. Some are so taken in by this fraud that they look forward to 15 April as the day when they receive a windfall, rather than recover (interest-free) the loan they’ve made to the federal government.

Thus, much like the effects of the date-rape drug, we don’t notice how much we’ve been scr..., er, victimized.

Finally, let’s consider Tax Freedom Day, looming ahead. According to the non-partisan Tax Foundation, the day when the average American starts working for himself or herself is on 30 April, two days later than last year. Now, to be sure, that's a damn sight better than in the deep, dank days of the Clinton Interregnum when, in 1999, it fell on 5 May, the latest date ever. But it's not nearly as early as in 2003, when it reached its earliest point (18 April) since 1983. That is, until 30 April, you’re working for the governments (local, state, and federal). It is not until after that date that you begin working for yourself. Average Virginians pay 32.7% of their income in local, state, and federal taxes, or nearly a third.

More disturbing is the fact that Virginia, once known as a low tax state, is now --- largely thanks to Governor Marky Mark and his Funky Bunch (AKA some Republicans who enabled his avarice) --- merely average, with Tax Freedom Day falling on 30 April. That is later than in other traditionally high-tax states like Ohio (29 April), Pennsylvania and Michigan (27 April), and Oregon (24 April), and is only a day earlier than the People's Republic of Maryland. According to the Tax Foundation, Virginia's tax burden now ranks 17th nationally. And that is a ranking in which being "Number 1" is nothing for which a taxpayer would wish.

In the spirit of the season (tax season, that is), I offer three modest suggestions to achieve constitutional government (that is, restraining the federal government within the limitations too long ignored by Democrats and Republicans alike) and lower taxes, as follows:

First, replace the current deductibility of charitable contributions with a dollar for dollar tax credit for charitable contributions, up to a point certain determined to be necessary the very few functions enumerated in Article I of the Constitution, primarily national defense. Applying the highest tax rate, this would more than triple existing tax incentives to charity.

Government could therefore get out of the welfare business, giving it back to churches and private organizations, where it belongs. This would also avoid the more than fifty cents on the dollar lost to sinfully inefficient government. And while those who display their economic ignorance by saying the churches can’t handle it — apparently they believe that the market will not adjust — it is a just, proper, and probably more effective method of delivering charitable services.

Second, repeal wage withholding, and bar it as a practice. Make all taxes on income – including FICA and Medicare – due and payable on the deadline for the filing of tax returns, in one lump sum payment. If our tax burden is “fair,” the favorite word of the statists, then there should be no need to obscure the burden, as it has been for far too many years.

Finally, move Tax Day to the first Monday in November, the day before Election Day. Currently, tax returns and payments are due as nearly far from the preceding and succeeding Election Days as is possible. Moving this date to the day before Election Day would place it in proximity to the most important decisions we make as citizens, and the period when, according to all of the polls, Americans are most engaged in the political process.

Winston Churchill once observed that “Nothing in life is so exhilarating as to be shot at without result.” Politicians desirous of a similar lack of result would pay greater heed to our traditional constitutional limitations upon the appropriate role of government, and would be much more reticent to create dubious “government services,” only when voters’ attention is focused both upon election and the price that they will be required to pay for government.

Don’t expect these reforms too soon, however. No big-government politician — sadly, they still constitute an overwhelming majority — in his right mind would ever agree to them. And certainly, Republicans failed to cover themselves in glory during their twelve years of congressional control in reining in government spending.

Certainly, we can't expect fiscal responsibility from Democrats. Indeed, taxpayers can expect a shock in just a few years, when the Bush tax cuts expire, and Democrat failure to act could cause the largest tax hike in American history.