However, it acts as a magic carpet giving you a ride to happiness or tears, dependent on which side of the economic scale you happen to be on at any one time.
This is a very short primer in how the income tax code has been manipulated by special interests supported by Congressional action over the course of time to do much more than just garner a tax based on what you earn in income. Keep in mind, the IRS does nothing more than try to collect, or not collect, what Congress tells them and they do a remarkable job getting that accomplished unfortunately at the cost of horrible complexity that drives the rest of us nuts..
While you’re doing your tax this year take a close look at the 1040, it is divided into sections:
The first section, Lines 7 to 21, identifies your income. This in itself is complicated in that some income is reported, some is not (tax exempt interest, for example) and some is partially ( some pensions, annuities, and SS for example) qualified and ordinary dividends, interest and, of course, there are the elements of capital gains and losses-short term, long term, inherited, gifted, etc., etc.
The next section, lines 23 to 36, “adjusts” that income by a whole panoply of credits, all generated by special interests as the line items identify.
Then we get to the important stuff – section 3. In lines 38 to 46 we make the first tax calculation. But wait, before we do that lets reduce the income some more; let’s allow a standard deduction for everybody but vary it by age and whether you’re blind or not and status of filing (single, married filing joint, separate, head of household, etc,) What, you ask, does that have to do with anything? More special interests got their finger in the pile. If that doesn’t work for you, maybe you can itemize deductions; more complicated and, at times, almost undecipherable rules, And lets not forget the exemptions that can be deducted for yourself and your dependents, When you get into who can be a dependent you face pages of rules. You find a second cousin, twice removed maybe can; or maybe not. Finally you think you’re at the point where you know what the tax you owe is and then comes section 4.
Lines 47 to 54 allow a series of credits that can reduce your tax. Most of these are called non-refundable credits. They can only reduce the tax to 0 and like so many of the reductions in income we’ve referred to before and those credits that are to follow; they make up a complete welfare program hidden within our tax structure. If, for example, you meet certain requirements you can get a child tax credit of $ 1000 per qualifying child. If you have three of these little shit kickers you’re allowed to decrease your tax by $ 3000. But if only $ 2000 of that reduces your tax to zero you don’t get the other $ 1,000; makes sense to me, does it to you?
Then they remembered there are some other taxes that they forgot about and that should be added back in so we have section 5 which is composed of lines 56 to 61. Sorry, you may be at 0 but owe something anyway.
Now we get to the best part. Section 6 contains the “refundable” credits. You may qualify to get these whether you owe a tax; whether you have to file or not. The government just decides to give you the money. A biggie in here is the earned income credit which can amount to a large sum if your earned (from wages) income was low. Of course, if you had no earned income you weren’t employed and got unemployment insurance – what, didn’t I tell you? You have to pay a tax on that as required in the first section! Wow, the government giveth and then the government taketh away. It’s nuts! My oh my, there’s also an additional child tax credit to make up for what you didn’t get in section 5 to reduce your taxes. Need I go on?
Anything would be better than this. A fair tax, a flat tax, a VAT, tithing; anything!