Oy Vey. Or Yay? Tax Day!
Or, How to Learn to Stop Worrying and Love Our Civic Duty
April 15 is fast upon us, and I am sure that many of you lovely people have finished your taxes already and are now enjoying a well-deserved break. Alas, for Americans living overseas, things are much more complicated, and our family has had to file for an extension yet again. I try not to feel aggrieved about being a citizen of one of only two countries in the world (the other is Eritrea) that taxes people based on citizenship rather than residency—a rule that means that Americans abroad are double-taxed. But I do occasionally think to myself, No fair!
But never mind. We’re in our tax guy’s capable hands. (His name is Chad; according to one definition in Urban Dictionary, Chads are able to accomplish extraordinary feats. Let’s hope so!)
This time of year it’s important to remind ourselves that paying our taxes is patriotic. We can think of taxes as membership fees for participation in a functioning society. Most of us accept that it is legitimate for clubs, churches, and other organizations to charge for membership. Most of us scorn the sleazy types who weasel out of paying their share and stick us with the tab. Most of us don’t want to be a mooch. So why do we so often feel put-upon, irritated, and hard-done-by when we pay our taxes? And how can we feel better about it? I have some ideas!
Die Hundesteuer
There is one tax I actually like paying: Switzerland’s Hundesteuer, or dog tax. People who own dogs here pay a tax of about $120 per dog per year.
Everyone benefits from this tax. The tax makes it easy for us to clean up after our dogs, because it funds Robidogs—special dog-poop trash cans that are installed on nearly every block. The Robidogs dispense free bags, and twice a week, workers zip around in spiffy little rigs, to empty the Robidogs and replenish the bags.
The result is that when we’re out and about, no one ever has to perform the maneuver my son has dubbed the Ninja Poop Avoid. Everyone enjoys clean streets, and dog-owners appreciate the ready supply of bags and bins.
The beauty of this tax is two-fold: First, the benefits are clear and direct. Everyone understands that thanks to this tax, we never have to contend with sidewalk landmines or stinky trash cans. Put bluntly, the dog-tax is superior to relying on personal responsibility. As anyone who has ever walked anywhere that’s not in Switzerland knows from bitter experience, pooper-scooper scofflaws lack personal responsibility. But also, as anyone whose dog has had an especially “productive” day knows, even well-meaning, conscientious people need a helping hand (and an extra bag) now and again. Working together to solve this problem is better than going it alone.
In addition, this tax is paid by the people who have created the need for it. Those who don’t have dogs don’t pay. This strikes most people as reasonable, the same way that most of us are ok with taxes on cigarettes and alcohol.
Our US tax system, for all our frustrations with it, does resemble the Hundesteuer in some respects. Our taxes’ benefits may not be as direct and obvious as the ubiquitous Robidogs, but they do fund useful public goods and services and protect us from threats.1 When we feel disgruntled about taxes, it helps to remind ourselves that even if we don’t use a particular service, our economy prospers when our neighbors are able to access, say, an education, police protection, and roads.
So, Taxes. What’s Not to Like?
On the other hand, some flaws in our tax system prevent it from being as easy and fair as the Hundesteuer.
Even Einstein Was Confused
Or at least that’s what Einstein once told his accountant: “The hardest thing in the world to understand is income taxes.” For many of us, US taxes are so complicated that we have to employ professionals like Chad to sort them out for us. Even people who take the standard deduction and whose income comes from one employer must keep their own records and wade through confusing forms. The process is stressful and time-consuming.
It doesn’t have to be this way. My friend Bodil is Swedish, and she reports that for the vast majority of Swedes, dealing with taxes takes about fifteen minutes from start to finish. Employers send workers’ information to the tax authority, and interest and investment income and mortgage interest deductions are handled directly by the banks, so private citizens don’t have to deal with paperwork. Every March, Swedes
get an online tax return that has already been filled out for you with all your information. You look at it, check that everything is correct, digitally sign it, and it’s done. If you have a normal house, normal job, and normal bank account, you don’t have to do anything. It’s all so easy!
The good news is that the IRS has recently made it possible for people whose adjusted gross income is $79,000 or less to file their taxes for free online. Our kids used this service for their taxes this year and while it didn’t take fifteen minutes, they were done in about an hour.
Those IRS Agents Aren’t Out to Get Us, Actually
Doing our taxes is not only time-consuming and expensive, but also anxiety-inducing. What if we get audited? It is a terrifying prospect to be an ordinary person up against an enormous, powerful bureaucracy. I ought to know, because it happened to me, when I was a grad student living in the poverty pit. Back then, I coordinated a discussion group for about twenty graduate students and professors, which met a dozen times a year. Part of my job2 was to spend my own money to purchase refreshments for the meetings. After each session, I’d take my receipts to the office of graduate workshops to be reimbursed. Someone must have misreported these reimbursements as salary, because one day I received a frightening letter from the IRS that accused me of concealing these payments—about $240 ($570 in today’s money)—from them.
After my heart rate slowed down and I was again able to think calmly, I realized that the letter had to be a mistake. I took it to the university office and an admin gave me some exculpatory documents. I forwarded them to the IRS with a sternly-worded letter and the whole thing went away. It turns out that the IRS is amenable to reason and evidence.
You may be objecting that even though nothing bad happened, it was still ridiculous for the IRS to be wasting its efforts on small fry like me. I agree! Even if I had actually been guilty, in my tax bracket the IRS would have recouped, like, $20. But this is what we get with an underfunded IRS—they go after the easy cases because they lack the resources to investigate rich tax cheats, whose finances are much more complicated. It’s like the guy who looks for his keys under the lamp post because that’s where the light is.
In 2022, the Inflation Reduction Act provided $80 billion in new funding for the IRS, and many people lost their minds. They concocted alarmist scenarios of jackbooted thugs persecuting ordinary Americans. But the opposite is actually the case: With additional resources, the IRS is able to go after the big tax cheats who are hurting the country, and to collect the money they owe the American people—$688 billion in 2021 alone.
We’re All Justice Monkeys
Readers are probably familiar with the research suggesting that primates have an innate sense of justice. Researchers divided capuchin monkeys into two groups and had the monkeys perform a simple task. At first, both groups were rewarded with cucumber pieces. So far so good. But in the second round, one group looked on as researchers rewarded the other monkeys with grapes, while they continued to get cucumbers. It did not go over well, to say the least. You can watch a cheated monkey’s reaction in the video below. I think you will find it relatable!
It’s the same for us, right? It rankles that Elon Musk, Jeff Bezos, Warren Buffett,3 and their ilk pay much lower tax rates than we do. How much lower? According to a report by ProPublica, the richest twenty-five Americans pay an average federal income tax rate of 3.4 percent, as compared with median US households, who pay an average of 14 percent in federal taxes on incomes of $70,000. Many corporations pay no tax at all. Payroll taxes are regressive too: “Americans with less than five-figure incomes pay an effective payroll tax rate of 14.1 percent, while those making seven-figure incomes or more pay just 1.9 percent.” And it seems wrong that income earned from work is taxed at higher rates than income received from investments. Worse, this lower tax on investments incentivizes mathematically talented young people to work in finance rather than becoming, say, doctors, electricians, engineers, nurses, scientists, and teachers, jobs that actually help others. For all these reasons, tax day can make us feel like that grumpy monkey.
The Biden administration wants to increase taxes on corporations and top earners. I honestly don’t understand how anyone (not even the super-rich) could object to this proposal. I mean, very few of us make more than $400,000 ($450,000 for married couples), the floor above which the marginal tax4 increases would take effect. These increases would affect only those Americans who can most afford them. As the proposal notes, “No one earning less than $400,000 per year will pay a penny in new taxes.” There is so much need in our country, and a reasonable tax system will put billionaires’ money that is currently being squirreled away in the Cayman Islands or paying for their umpteenth private plane or Birkin bag to better use for all of us.
More Worthy Causes! More Worthy, Worthy Causes!
Of course, one snag is that many of us disagree with how tax revenue is currently being spent. It’s not just pork, boondoggles, and grift; some government subsidies—for example to manufacturers of high-fructose corn syrup—transfer money from ordinary Americans to enormously profitable corporations whose products are bad for us.
We feel better about paying our taxes when our money supports worthy causes, and when the tax code incentivizes helpful, rather than harmful, policies. Here’s an example of what I mean: Minnesota gives a tax credit for selling mobile home parks to cooperatives. Why is this important? As Matthew Desmond details in his book Evicted: Poverty and Profit in the American City, privately-owned mobile home parks exploit the poorest Americans. Owners of mobile homes pay exorbitant “lot rent” for the ground the trailer sits on. Tenants are usually too poor to afford to have their mobile home towed away, and so they are trapped paying rents that are significantly above market rate. Worse, “The high demand for the cheapest housing” means that landlords are unwilling to “lower the rent, forgive a late payment, or spruce up the property.” By contrast, resident-owned cooperatives are nonprofit, and their residents enjoy reasonable rent, regular maintenance, and security against unfair eviction. Minnesota’s tax credit helps its most vulnerable citizens get a fair shake.
Attentive readers may have noticed that for each of the four problems discussed above, one side of the political aisle is working to make the system fairer. As we fill out our returns, we might consider which political leaders want to keep shoveling money at the richest among us at our expense, and which ones want to improve our tax system for the vast majority of us. Perhaps in addition to filing our tax returns, we can file this information away for November.
How about you, readers? Do you hate paying your taxes, or are you pretty much ok with it? And how would you improve our tax system? Please share your thoughts in the comments!
The Tidbit
Did you know that the EU is considering taxing cow farts? Or that centenarians in New Mexico don’t have to pay state taxes? Or that the command pilot for the Apollo 13 mission had to call Houston from outer space to request an emergency extension on his taxes? (Source.) Here are more fun tax facts:
Fortunetellers, astrologers, and witches were added to Romania’s labor code in 2011, meaning they have to pay income tax and contribute to the country’s social programs. Some witches cast curses on the government in response.
During the 16th century, King Henry VIII imposed a tax on beards that increased with the wearer’s social status. Eventually the tax was dropped, but his daughter, Queen Elizabeth I, reintroduced a beard tax on anyone with more than two weeks’ worth of growth. In Russia, Peter the Great . . . required every man, except peasants and clergy, to buy a “beard token” to prove they had paid up.
In Roman times, urine and the ammonia within it were collected for uses such as tanning and laundering. Emperor Vespasian imposed a tax on the buyers of urine from public urinals.
On this topic, I highly recommend The Fifth Risk, by Michael Lewis. Lewis profiles government experts who monitor risk and protect us from threats like natural disasters, food poisoning, terrorism, and many others we’re not aware of. For example, did you know that a solar storm could knock out our entire electrical system? Kathryn Schulz recently wrote in the New Yorker about “space-weather forecasters,” government scientists who are tracking solar flares and developing ways to protect the electrical system from solar storms. If you like having electricity and the internet, you ought to be grateful for our tax system, which pays for these experts.
The other part of my job was planning the topics for each meeting, assembling xeroxed reading packets, advertising meetings, getting the room ready, inviting guests, arranging for their honoraria, running the discussions, and cleaning and locking up the room afterwards. I did this for two years for free. Why? Because the coordinator position was “an honor” that would supposedly help me on the academic job market. Sigh. I would have been better off being paid for this work.
I know that we’re supposed to love Buffett and loathe Musk, but Buffett comes off the worst in this report. From 2014–18, Buffett’s federal tax rate was .1 percent, while Musk paid 3.27 percent.
If you already know what marginal tax rates are, please feel free to skip this footnote. But I have been surprised to discover that many intelligent, educated people misunderstand marginal tax rates. As this helpful page explains, a marginal tax rate is “the rate you pay on your highest dollar of income”—not on your entire income.
It helps to consider an example: Imagine Bob, who has an annual income of $410,000. Under the proposed new tax brackets, Bob would not be taxed 39.6 percent on the entire $410,000. He would be taxed 39.6 percent only on the $10,000 above the lower threshold of $400,000. The rest of his income would be taxed exactly as before.
As a self-employed writer I pay a pretty high tax rate. I wouldn't mind if I knew that hedge-fund managers and other billionaires paid a similarly high rate. We've gotten so accustomed to the idea in this country that rich people "earned" all that money and therefore shouldn't have to pay taxes--as if the more one earns the less social obligations one can be subjected to. That makes no sense. Plus, I earned my money just as much as Elon Musk or Jeff Bezos did. If I don't get a tax break then they shouldn't either. And of course, tax dollars pay for so many public services that have helped billionaires get fantastically rich, so arguably they should pay more. Where would Amazon be without airports and public roads? Or Musk for that matter. Pay up ya'll!
Dear Mari, once again, a very amusing, entertaining, and historical facts-filled blog.
one thing: it's DIE Hundesteuer, in German, taxes are feminine, for some odd reason. go figure... :)