The running of the bloodsuckers

Well, after completing 4 income tax returns and assisting with 2 others, and paying an obscene amount of taxes, I've come to the conclusion that our taxing system is completely and totally screwed up! I'm sure that doesn't come as news to anyone. A simple example is the Alternative Minimum Tax (AMT). Because our tax code is so riddled with social engineering and special interest promotion, certain high-income people were managing to avoid paying much tax at all. Apparently CONgress learned in 1969 that 155 families earning more than $200,000 hadn't paid any taxes. So their solution was to come up with a tax add-on that would eventually turn into a parallel tax code that was supposed to target high-income families. The difficulty is that the definition of high-income wasn't indexed to inflation. Thus millions of tax payers are now paying additional taxes. According to the Congressional Budget Office over 1/3 of all tax payers in the $50,000 - $100,000 range will pay AMT in 2006. The IRS estimates that 1/3 of ALL individual tax payers will have to pay AMT by 2010.

On a related note, as a tax payer with 3 household members in college, I notice that because I have been fiscally responsible and saved money since I was in college, I'm not eligible for any educational financial assistance from the government. On top of that, the tax breaks for college tuition and fees don't apply to me either because an investment I made in 1979 paid a large dividend to me and bumped me temporarily into a tax bracket that prohibits those tax breaks. Even without that dividend, taxable income from my other savings push me out of the eligible income ranges. What I glean from all this is that federal government doesn't want people to save their money. After all, I get taxed on the income from my savings, I am excluded from many tax breaks and/or aid options simply because I have been frugal and am not counting on the federal government ever paying me back a penny of the nearly $100,000 they've taken from me in social security taxes over the last 30+ years. Perhaps this is why in 2005 the US national savings rate dipped into negative territory for the only time other than the Great Depression. I'm not suggesting people not save, I'm just curious as to why the government penalizes people that save quite so much?

Another interesting tidbit about AMT is that it must certainly violate constitution guarantees. Under AMT rules, if you exercise ISO stock option (options granted you to reward performance or help ensure employee retention), you are taxed on the difference between the exercise price and the current market price. "Say What?" you say? So my company grants me 1000 options at $10/share. If I then buy the stock that those options allow me to buy some years later, I will pay a total of $10,000 for those shares. Yet if the market price for the stock is now $60/share, according to AMT, I just made $50,000, although you won't find that $50,000 in any of my accounts. Had I just bought those 1000 shares for $10 and now the price of those shares is $60, I have $60,000 worth of shares, that I will pay taxes on WHEN and IF I sell them, i.e., when I actually have money in my hands as a result of the stock transaction. But NOOOOO, with AMT, I get to pay for the stocks, AND pay for the increase in value that at the moment is only on paper. What a ripoff!

Instead of this "progressive" income tax system that we currently have that in effect discourages people from earning money, and penalizes you more and more the better at making money you are, and discourages savings, why not move to a consumption based tax? He who spends more pays more, with some obvious threshold(s) applied. As well tax heavily those items you want to reduce such as energy consumption, oil consumption, etc.

Well, in any case, the bloodsuckers got their pound of flesh from me this year!