There Is Still One Thing Governments Do Efficiently

Eric Felton writes in this Wall Street Journal piece that by making taxes and fees less visible, it makes it much easier for those taxes and fees to be raised.

I began advocating when I entered the profession more than a decade ago that if payroll withholdings were eliminated without any other change to the tax law, there would be another Boston Tea Party. That is, if working Americans had to physically write a check at the end of a pay period and submit it to the government, those people wold be so aggrivated that politicians would no longer be able to treat the tax code the way they do and still hold office. Ironically, as it turns out we have a tea party movement but still have withholdings. Maybe some of those Americans who are fed up with the current levels of tax and spend policies from both parties will finally see some results.

The next time you are irritated at how inefficiently government operates just look at your most recent paystub.

What Could Be Worse Than The IRS?

People who say ridding the world of the IRS is a valid point in favor of the Fair Tax should see this report.

Yes, whatever agency is charged with enforcing the National Sales Tax or Value Added Tax or whatever could be even worse to deal with than the IRS.

We Just Help Create Tax Law Not Comply With It.

This AJC political blog says that one member of the Georgia House of Representatives has not filed a 2008 income tax return. That is down from 19 a year earlier. This seems to be a dangerous time for a politician to not file returns with the state facing revenue shortages.

Dusting off The Package X - 1981

1981 - Ronald Reagan was in the Oval Office, the Iran Hostage Crises ended, Lady Di and Charles wed, Major League baseball had a 50 day work stoppage an individual income tax return looked like this.

Fast Facts

Filing requirements
Single $3,300
MFJ 5,400
MFS 1,000
Qualifying widower 4,400
The age of 65 and over afforded you an additional $1,000 before the filing requirements were met.

Tax rates.
There are no fewer than 15 tax brackets ranging from 14% to 70%. These rates take into account a rate reduction that was new for 1981. Not all tax statuses have the same bracket structure. Single taxpayers making over $108,300, heads of household over 161,300 and MFJ over 215,400 only kept 30 cents of each additional dollar they earned. I would be afraid to see what some state income taxes did to these earners.

New Changes for 1981
The rates were changed as mentioned above. Also, more people could qualify for the 1040A short form because the interest and dividend ceiling was removed. For those 55 and over, $125,000 of gain from the sale of your principal residence could be excluded. If memory serves correctly, I believe this was a once in a lifetime exclusion.

Sectional Overview

The 1981 1040 looks similar in form to the modern day version. It is two pages in length and broken down into the following 10 main sections: Filing Status, Exemptions, Income, Adjustments to Income, Adjusted Gross Income, Tax Computation, Credits, Other Taxes, Payments and Refund or Balance Due.

The Filing Status has the same five choices as the 2009 1040. The main difference in the Exemptions section is the box for being over the age of 65 and blind is contained here whereas the 2009 version has these boxes in the Taxes and Credit section.

The main difference in the Income section is the omission of Social Security benefits. Social Security benefits won’t become reportable until 1984. The Adjustment to Income has grow over the last several decades. The one thing deductible above the line in 1981 that is now below the line is an adjustment for employee business expenses (Form 2106). Employee business expenses are now an itemized deduction on schedule A subject to 2% of adjusted gross income.

Adjusted Gross Income earned Its own section on the ‘81 form. It also contained a reminder for the ‘Earned Income Credit’ if the amount was under $10,000. That seems low by 1981 standards.

Two things earn mention in the Tax Computation section. First, there is no standard deduction. Itemized deductions are reduced by an amount corresponding to the taxpayer’s filing status. The other thing about this section is the Schedule G check box. This schedule is for ‘Income Averaging’. If your income fluctuated from one tax year to the next, you could calculate your averaged income over multiple years if it saved you taxes. This was important when marginal tax rates were 70%.

There was actually a credit for contributions to candidates for public office! Granted the credit was for only one-half of your expenditures up to 50$ ($100 MFJ). For those of us rankled by ‘spending disguised as a tax credit’, having politicians subsidize the giving to their campaigns from their constituents is somewhat surprising. At least, it wasn’t refundable.

The other taxes, Payments and Refund or Balance Due sections are similar in function to the 2009 form. In 1981, there were refundable credits for taxes on special fuels, Regulated Investment Company credits and Overpaid Windfall Profit taxes.

In the coming days a weeks I hope to give a brief overview of changes to each year’s tax forms. Next up 1982.

Payroll Tax Reprieve?

Thomas Oliver writes in the AJC that the Senate shold propose a payroll tax holiday for six months as a means to stimulate jobs. There is a current version of this that only applies to new hires who have been unemployed for 60 days. Oliver makes some very valid points.

Oliver references George Mason economist Russell Roberts who would eliminate the payroll tax altogether, end corporate welfare and make small across the board rate increase for all earners. This should effectively broaden the base, stabilize rates and eliminate targeted special interest credits.

Let me be the first (or millionth) to support the idea of eliminating payroll taxes and corporate wellfare.

No Wonder I Never Understood Norwegian

A former colleague of mine was married to a girl from Norway. He would vacation to Norway to see her parents, stink up the office with Norwegian cuisine and inform coworkers of various Norwegian customs. He also spent a great deal of time learning Norwegian to help with his visits to his in-laws, as they spoke little English.

He never told me if the Norwegian words for hero and lunatic were similar but if this story is accurate they must be.

Tax-protesting pilot Joe Stack's daughter is caling her father a hero for his anti-government views. Sure, she gives the obligatory denounciation of his final act, but it's hard to reconcile her statement "Yes. Because now maybe people will listen." with anything resembling sorrow for the life lost in Austin last week.

It seems like the Norwegians give a pretty big award to people who advance the cause of 'peace'. Joe Stack's destruction seems minimal in comparison to Yassar Arafat, so maybe the committee ought to give him consideration.

Return Processing Unaffected By Austin Incident

On Friday, the IRS issued a statement saying that the tragedy involving the Austin federal building would not affect filing season activities. The IRS does not process returns at the Austin location.

Administratively, Joseph Stack's 'pound of flesh' had no bearing on IRS operations. Sadly, victom Vernon Hunter was not so fortunate.

God Bless Texas

A plane crash into a federal building in Austin, Texas appears to be the intentional work of a disgruntled taxpayer.

I haven't yet seen a number of injuries or deaths, but the pictures look terrible.

Signature Requirements on First-Time Home Buyer Documents

The IRS is advising buyers who qualify for the First-Time Home Buyer Credit to sign all settlement statements. The instructions to Form 5405 indicate that a properly executed settlement statement should show signatures of all parties. However, not all settlement documents contain a signature line. The IRS has conceded that it will accept a settlement statement that is complete and valid according to local law. Still, the IRS is advising taxpayers to sign the documents.

Anytime the IRS (or any state departments) issue these advisories to avoid processing delays, expect processing delays regardless to the precautionary steps you take.

Schedule M for Memory

The IRS is reminding people that other agencies are responsible for reporting the one-time payment of $250 that was given in 2009 to recipients receiving benefits from the Social Security Administration, disabled veterans receiving benefits from the U.S. Department of Veterans Affairs, and Railroad Retirement beneficiaries. If you can't remember whether or not you received the $250 you should contact your respective agency. This should be done prior to filing your 2009 tax return.

Information about the Economic Recovery Payment can be found here.

The form used for Making Work Pay and Government Retiree Credits is Schedule M.

Thank You For Waiting....

The Georgia Department of Revenue is notoriuos for being difficult to reach. This year may be the worst of all. The recorded message that assures you that your call is very important routinely warns callers that the wait time is greater than 45 minutes and urges you to seek information in some other manner.

For those of us that need to speak to a human directly, a 45 minute wait would be welcomed. So far this tax season I have had waits of 3 hours, 1hour 45 minutes and 1 hour 15 minutes. To be fair, speaker phones allow me to continue working so that my day isn't ground to a halt.

There are several other recorded messages with general information such as:

• If you have a question about a payment made through e-file and e-pay systems, please call 1-800-272-9829. This is a third party vendor that handles procesing payments for Georgia as well as other states.
• If you have questions about withholding on non-resident distributions, submit those questions in writing via fax to 404-471-4326. Be sure to include your FEIN or Georgia withholding identification number. The form to use for non-resident withholding is G-2-A. It's funny that they request questions to be submitted in writing. My experience is that you can almost never reach anyone by phone with the knowledge or authority to answer any questions of substance. The best you can usually do is find an unpublished fax or phone number of someone who can.
• For questions about withholding refunds submit form IT-550 to fax number 404-417-2426. Please allow 6-8 weeks for processing. Form IT-550 is used to request a refund for Georgia withholding that was erroneously submitted. This form as well as the form for amending sales taxes has a link in the e-file/e-pay system which should allow you to submit these electronically. However, the link always seems to be broken, and the time or two I've asked a DOR employee about this they admit that the electronic system doesn't work as well as it should.
• If you have received a notice regarding unpaid taxes and have proof of payment, please submit a copy of the front and back of the check along with the notice to fax number 404-417-4327. This is may favorite recorded message. For some time, Georgia has had difficulty with properly crediting tax payments to taxpayers' accounts. No fewer than 10 times a year, I have a client who receives a notice regarding a tax liability that has already been paid. In almost all cases, the proper identification number is clearly written on the front of the check and the back is endorsed by the Georgia DOR. It's as if the DOR is so overwhelmed around deadine days that it's all it can do to deposit the checks. It leaves the burden of proof for payment on the taxpayer, once again raising the cost of compliance.

None of this is going to get any better in the very near future, as the state is downsizing the DOR in the midst of declining revenues. If you must make a phone call, make sure you have a couple hours worth of something productive to do while you wait.

Tax Tips From The IRS

If the inclement weather leaves you with nothing to do this weekend other than your taxes, the IRS is ready with several tips.

Here is a link with the February tax tips thus far.

Sorta Like Christmas - If You Believe the Federal Government Is Santa Claus

According to the AJC, Georgia House Bill 1069 is a bill that would allow a $2,500 credit for Georgia residents who install energy efficient heating and cooling systems.

Everyone is happy according to sponsor Joe Wilkinson (R-Sandy Springs) who says, 'It's sorta like Christmas.' The problem is that the availability of the funds to do this depends on Georgia receiving more stimulus funds from the federal government.

At least, no one is trying to pass this as one of those tax credits that pays for itself.

Unemployment Taxes Slam Employers for Having Employees

CNN Money reports that employers in 35 states are now facing a tax hike at a time most cannot afford it. Unemployment taxes are on the rise. The median increase is 27.5%.

As I wrote yesterday, many politicians suggest that targeted tax credits would give businesses an incentive to hire. Wouldn't it make even more sense if the existing barriers to employment were removed first?

Tax Credits Aren't The Same As Tax Cuts

The Atlanta Business Chronicle (subscription required) has an article about proposed Georgia House Bill 1023. Most of the article has been reproduced on Rep. Tom Graves campaign website.

This quote caught my attention: "“Some folks believe that you grow government in order to create jobs,” Graves said. “We believe that you grow the private sector to create jobs.” I certainly agree with the premise of this quote. I disagree with those who believe a larger government is needed to create jobs, in fact, I believe that a larger government is a hindrance to job creation. I agree with the 'we' that the private sector is where job creation occurs.

Where I disagree on this issue with Rep. Graves and many Republican lawmakers is the use of targeted tax credits. Tax credits are not the same as tax cuts whether the Democrats or Republicans are advocating them. In fact, tax credits like the 'angel investor' credit effectively expand the government, exactly the opposite of what supporters intend to do.

For example, suppose a corporation calculated its income tax (currently 6% of net income in Georgia) and submitted that amount to the Department of Revenue. If that corpoartion later received a check from the Department of Corporate Welfare for 50% if its initial investment in a company with fewer than 20 employees, people would recognize that payment for what it is. And it ain't a tax cut. But for some reason when that same corporation calculates its income tax and deducts the 50% investment as a 'credit' on its tax return, people seem to feel as if taxes are cut.

Now reasonable people could certainly believe that this targeted spending would be beneficial for creating jobs and stabilizing unemployment, but it is unreasonable to think this is anything that resembles a tax cut.

Here is the way governments should be be administering tax cuts: lower the RATE!

IRS Notice concerning Haiti Relief

Contributions made to Haiti after January 11th and before March 1 can be deducted on 2009 tax returns. Other bloggers have written about the preferential treatment Haiti contributions have received, with which I agree.

However, I am excited to see an IRS notice translated in Haitian Creole! Many cell phone companies offered a way to designate a contribution via text. Unfortunately, the IRS hasn't translated this notice to any text language. You can go here to do that.

Just In Case Every Other Website Ceases To Exist

The IRS is reminding taxpayers that they have videos on YouTube. These videos aren't as funny as watching Hitler go nuts because the Cowboys stink, but they do give some general information.

IRS Debunks Frivolous Tax Arguments

The IRS has released its rebuttal to the growing list of common frivolous arguments made by people who oppose compliance with federal tax laws.

The IRS advises that anyone contemplating on legal grounds against paying their fair share of taxes should first read this 80-page report.

I'm not sure that 'fair share' is a legal term. I'm sure that sounds better paying your legally determined amount of tax.

Once again, this report highlights injunctions against preparers and promoters of these phony schemes. Once again, the IRS acheived this without the proposed prepare regulations in place.

This Just In: The IRS Already Has The Tools To Catch Cheating Accountants

We all know the benefit that H&R Block, Jackson Hewitt and the like will receive from the IRS proposed preparer regulations. Will these new regulations protect the public or increase proper compliance?

If today's IRS news release is any indication, these new regulations are unnecessary. The IRS today suspended a Houston, TX tax preparer for 12 months for providing false and misleading information in connection with the filing of tax returns.

This CPA, according to the news release, instructed clients to forward funds to two corporations that he controlled. There was no business purpose, other than to get rid of the cash. The funds were then rebated to the clients. A deduction was taken and fully expensed on the client returns. IRC sec. 162 requires business and trade expenses to be ordinary and necessary in order to be deducted.

The crazy thing about both the new regulations and any scandal involving a tax preparer is that the compentency of the individual involved is rarely in question. This guy was a licensed CPA and I see no reason why he would not be able to pass any test the IRS could formulate. (As a CPA, he would not be required to pass the competency exam.)

Hopefully, a few more of these stories will break before any new regulations take affect and people will recognize the regulations for what they are: barriers to entry in the tax preparation profession.

We Are Marshall!

The Georgia Department of Revenue doesn't publish how much the film tax credit costs the state. The Tax Foundation, however, writes that on average for every dollar a state spends in film credits, the state only receives back 19 cents.

So when Matthew McConaughy and his studio received the free handouts back in 2006, 81% of those credits never made it back into the state or 'paid for itself' as the politicians would tell you.

But hey, didn't Sonny look good on the big screen!

Corporate Welfare Available In Georgia

The following is a list of credits available to corporations from the state of Georgia.

Employer's Credit for Basic Skills Education.
Employer's Credit for Approved Employee Retraining.
Employer's Jobs Tax Credit.
Employer's Cridet for Purchasing Child Care Property.
Employer's Credit for Providing or Sponsoring Child Care for Employees.
Manufacturer's Investment Tax Credit.
Optional Investment Tax Credit.
Qualified Transportation Credit.
Low Income Housing Credit.
Diesel Particulate Emission Reduction Technology Equipment.
Business Enterprise Vehicle Credit.
Research Tax Credit.
Headquarters Tax Credit.
Port Activity Tax Credit.
Bank Tax Credit.
Low Emission Vehicle Credit.
Zero Emission Vehicle Credit.
New Facilities Jobs Credit.
Electric Vehicle Charger Credit.
New Manufacturing Facilities Property Credit.
Historic Rehabilitation Credit.
Film Tax Credit.
Teleworking Credit.
Land Conservation Credit.
Qualified Education Expense Credit.
Seed-Capital Fund Credit.
Clean Energy Property Credit.
Wood Residuals Credit.
Qualified Health Insurance Expense Credit.
Quality Jobs Credit.
Alternate Port Activity Tax Credit.

I'll comment further in future posts about a few of these credits. Don't count on many of these going away as a means of avoiding future furloughs in education.

You Don't Drink It, You Legislate It!

The AJC.com reports that state Rep. Tommy Benton wants to introduce legislation that would require antifreeze to not taste so good.

Among all the sordid details of the goings-on under the Gold Dome, drinking antifreeze seems normal.

Lenin Was Wrong!

The socialists aren't going to hang the capitalists with rope. The capitalist pigs will be shot!

The IRS intends to purchase sixty Remington Model 870 Police RAMAC #24587 12 gauge pump-action shotguns for the Criminal Investigation Division. You can learn more about this opportunity here.

Just remember to properly report the income from sale of your gun. Tax compliance greatly increases when staring down a loaded weapon, I'm sure!

That 'Free' Service Cost Americans $800 Million In 2008

According to a joint report from the Consumer Federation of America and the National Consumer Law Center, 8.4 million taxpayers were sucked into a refund anticipation loan. It amounted to an average of nearly $100 per transaction. These fees are in addition to any fees for the preparation of the tax return itself.

The annual percentage rate of these RALs can range anywhere from 50% to over 500%.

Because Obama hasn't outlawed stupidity, these APRs aren't affected by any changes to the credit card industry. So when you see the clown juggling by the side of the road advertising free tax loans, make sure you understand his defintion of free.

What Do Free Tax Loans, $3.99 Pizza Buffets and Going Out of Business Jewelers Have In Common?

They use underemployed people to stand near traffic, waving signs and otherwise make fools of themselves. This guy is obviously waving the sign for a CPA. The tie gives it all away. I wonder if he has casual 'sign waving' Fridays?