Tax Code

Each year when I do my taxes, I get a refresher course in the ways our tax code has contributed to our current economic mess.

I’ll skip my shrinking, meager W-4 for Schedule B where I must list all the interest I earned on savings accounts as it was reported by banks to the federal government. When I first deposited money with my local bank in 1999, it was paying 4.17% interest. That fell in September, 2001, to 3.69%, then dropped to 2.75% the next month. It’s been hovering around 1% since 2004 and last month fell to its all time low, .75%.

Whenever I get my bank statement I say thank you Mr. Greenspan for making money so cheap and using your power at the Federal Reserve to implement your view that savings were bad for the economy. With the rates I’ve been paid for the last decade, why would anyone save? And why does the federal government still want to tax my tiny earnings at the full income rates? Unearned capital gains on hedge fund returns are treated more gently.

Then I get to Schedule A which allows me to itemize deductions. I do the formula for medical and dental expenses, and actually now have enough to report. That’s not because I’m sicker, but because I no longer have employer paid health insurance, and deductibles and co-pays have risen.

Back when I was finishing graduate school in the early 1970's, I was paying $2.25 a month for birth control pills. I’m now paying $38.00 a month for my portion of the $56.07 paid by my insurance company for the hormone replacement that uses the same chemicals. They claim it retails for $59.60.

That constantly changing W-4 never increased that much. My highest income was less than 5 times what I made as a beginning college instructor, but the retail price of my drugs is 26 times what it was then. The fact I actually pay only 16 times more is not much consolation when my income in now only twice what it was then.

Thanks Congress for never having the guts to stand up to lobbyists.

When I complete Schedule B I realize my total is now less than the standard deduction because I now own my house. The people who benefit most are those who pay the highest interest on their mortgages. Those who pay no principal make out the best, and those are the mortgages that caused the first problems with the housing market. But, when the banks were offering those deals and the government was subsidizing the mortgage payment, why would anyone do anything more responsible? It only cost money.

If Congress wanted to encourage home ownership, there are other ways they could create this deduction that benefitted people who lived in their houses for years rather than those who moved every few. But, of course, the person who stays in a house generates no income for the mortgage lenders, and so becomes a drag on the economy.

Last year I noticed Schedule L which allows me to add some of my real estate taxes to my standard deduction. But the limit is $500. If I were able to itemize my expenses, I could deduct the whole $614.15.

To get to the final total on Schedule L, I have to wade through the section that lets me deduct the sales tax on a new vehicle up to $49,500 in value. The more I spent, the more I deduct. The more I spent, the more likely it was I bought an SUV or other vehicle that consumes more gas than my 10 year old Hundayi. Again, the fiscally conservative receives less than those who contribute to our environmental and energy problems, because their spending creates jobs and we do not.

When I got done several years ago, I discovered if I had declared zero dependents and used standard deductions, I ended owing taxes. That hadn’t been the case the year before, but politicians had started manipulating the deduction schedules to give people more money each week which could then be spent on houses and cars they couldn’t otherwise afford. At the end of the year, no one remembers the benefits, only faces the bill and curses the government and taxes.

My solution, encouraged by the tax code, was to play accounting games. I took money out of that savings account that’s paying such low interest and moved it to an IRA that pays less than I made in 1999. That sleight of hand movement of money that’s been sitting there from the time when I had a higher income, earns me a refund. Why would I save money, Mr Greenspan? To buy a refund.

So here I am, getting ready to mail a tax return that benefits those who invest in gas guzzling cars and bad mortgages, that punishes savers and people who stabilize communities by staying in their homes, that teaches tax avoidance and creates unnecessary frustration, and think no wonder we’re in the fix we’re in.

I’d say, if you want to do something serious about the economy, fix the tax code. But then I think, this Congress would only make it worse.