Thoughts on Tax Day

The sun has set on another April 15, and here in the eastern time zone, folks have 2 hours and 12 minutes to get their returns to the post office.

Hating taxes seems like the American birthright. The colonies severed the bonds of the mother country in part because of unfair taxation policy that treated the colonies like an 18th century ATM. Apparently, in the intervening years, we have lost the distinction between fair and unfair taxes. The Revolutionaries' problem with things like the Stamp Act wasn't that it was a tax. It was that it was a tax levied by by the British Parliament. Colonists questioned Parliament's authority to levy taxes on colonists without consulting with the colonial governments who handled administrative issues in the colonies. It wasn't even a matter of a lack of Parliamentary representation. Parliamentary representatives at the time represented the good of the British Empire as a whole, including the colonies. In a way, everyone was represented, and no one was. Procedures existed for petitioning Parliament for colonists to sit in Parliament, but the logistics of actually having a colonial delegation were nightmarish, and besides, the colonies never asked.

We make the mistake of teaching this level of nuance in high school, at an age where students retain very little information about anything that does not have a cute butt. As a side note, this is why we need to teach American History using less of Gilbert Stuart's portrait and more of Horace Greenough's 1841 statue showing George Washington half naked and ripped. Since taxation policy isn't sexy no matter how you slice it, opposition to unfair taxes became opposition to any taxes. The annual national grumbling on April 15 doesn't help matters. Kids grow up hearing mom and dad moan about taxes in the middle of April, and the dislike of taxation transmits to another generation.

People hate taxes. You know what people don't hate? The stuff taxes gets them. They like Social Security and Pell Grants. They like food and drugs that don't kill them. They like roads (note to the department of transportation: they like roads that don't sprout the same potholes like clockwork every October even better). They like those military snipers who took out the Somali pirates. All of that costs money, and money comes from taxes. You really want to Support Our Troops? Stop bitching at the very mention of a tax increase, since taxes are how we pay our troops, and if we don't have enough tax money, we can't pay the Troops.

I actually don't mind paying my fair share of taxes. I get a lot in return. The police come when I call. The township keeps the road in front of my driveway from flooding. A taxpayer-funded program got me into college, and federal student aid kept me there. Without taxes, I'd probably still be in a job where I showered when I came home to get the nauseating combination of fryer fat and cigarette smoke out of my hair. So I'm OK with taxes. Not OK enough to pay more than I need to, but I don't mind paying for all the stuff government gives us.

Here's the kicker, though: I don't actually pay taxes. At least not this year. We paid the usual FICA stuff for Social Security and Medicare, but our income tax this year was $0, even with a gross income that places us solidly middle class for a family of two. We have an honest-to-goodness accountant (not the people at H&R Block) do our taxes and consult with us throughout the year on the tax consequences of major financial decisions. He advises us of ways we can reduce our taxes, but has never suggested anything more exotic than planning IRA contributions to maximize the available tax credit.

During the campaign, Obama talked about raising taxes on people earning more than $250,000. People oppose this, mostly because we want to believe that one day, we will be that person earning $250,000 a year. It's April 15, the time of year where our financial lives are slapped before us in black and white. It's a great time to assess the reality of your financial situation.

Take a look at Line 22 of your 1040 form. That's your total income. How close is it to $250,000? Be honest. If you need to, take a calculator, divide 250,000/total income and see just how many years it takes you to earn $250,000, gross. If that number is, say, four, can you envision a realistic scenario wherein your income will quadruple before you retire? If this scenario involves winning the lottery, factor in that any jackpot less than $5 million still leaves your 20-year annuity payments below the $250,000 threshold. For you hourly workers, can you envision a scenario where you are making $120.19 per hour, every hour? That's what it would take for 52 forty-hour workweeks to put you over the $250,000 mark. Even if you put in 80-hour workweeks and worked through Christmas, the family vacation and the worst case of stomach flu imaginable, you'd still need a job that paid a dollar a minute.

While you've got the calculator out, divide 3,500,000 by your total income. The result is how many years you would have to save every penny you make, not even buying a stick of gum or a kilowatt of electricity for light and heat, to have your estate subject to the estate tax. Life expectancy is around 78 years. Do you really have that many years and that much financial discipline left?

With bailout numbers in the trillions getting thrown around, it is easy to lose persepective on just how much $250,000 is compared to what we actually make now. With all the bubbles being burst in the economy, I almost hate to be the one to burst this one. Fact of the matter is, though, most of us are never going to make a quarter million a year, nor are we going to have $3.5 million to leave to the kids.