Well, it’s that time of year again, when the 300 million or so Americans file their federal, and in most cases state and local income tax returns. This year, like the past few years, I’ve used TaxCut, mostly because I’m getting pretty good at weird cap gains issues and because TurboTax annoyed me a few years ago with their overly aggressive product activation thing. What I’ve observed over the years is that even though I’m using the same program that loads in data from the previous return, I seem to be rooting through my yearly files more for random documents than before. Sure, there are the receipts for charities, and in WA state sales tax (but hey, unless it’s a big-ticket item, just go with the standard deduction). But I gotta keep track of the WA state tab cards that state how much tax I pay, and various transaction details and such. But the big takeaway is that I’m realizing that it’s becoming much tougher to not have software to fill out a modest 1040. I’m not talking about the simple math. Instead, it’s the ton of speculative calculations and mini-worksheets that need to be filled out.
At times like this, I often wonder about the difference between the “progressive” income tax and a “regressive” sales tax. At least in the US, income tax is used both to collect revenue in a way as people can afford (e.g. rich pay more than poor), as well as to encourage behavior via credits and deductions. For example, if both parents work, then some child care expenses (daycare) can be deducted. But if one spouse doesn’t work, then no deduction. The idea clearly is to encourage spouses, in particular mothers, to either stay home with the kids or work. However, putting the kid in daycare or a preschool environment without working (such as you might do when one kid is getting older and needs to socialize with other kids, and there’s a newborn that needs lots of mom time)… well, that’s just to be discouraged.
In Washington state, every now and then people grumble that we have a very regressive sales tax and no income tax, instead of what Oregon has, which is a high income tax and no sales tax. However, what a lot of people fail to recognize is that approximately 1/3 of purchases are made by businesses, thus businesses pay a third of the sales tax burden. Meanwhile, with an income tax, there’s all sorts of ways to avoid it. So, even though it normally runs against my normal instincts, I sometimes do give pause to wonder about how the economy of Washington seems to be doing much better than Oregon, and whether it makes sense to try and simplify things a bit. But that’s just crazy talk!