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Tax Trouble

Mises Daily: Friday, March 19, 1999 by


Paperwork Reduced?

Thanks to the Federal Paperwork Reduction Act, we Americans have the right to be told exactly why we have to fill out all the income tax forms we have to fill out and, furthermore, how long it should take. Right there, on page 51 of the 1998 Form 1040 instruction booklet, the IRS says that completing the Form 1040 takes an average of 11 hours and 34 minutes.

Of course, most people have to fill out a few more forms, like Schedule A and B, which take an average of 4 hours and 28 minutes and 1 hour and 12 minutes, respectively. That's a total of 17 hours and 14 minutes so far.

This year, I had to file Schedule C, which according to the IRS, should have taken me 10 hours and 18 minutes, but I don't think they included the time I spent going to the public library to get a copy of Schedule C. The library didn't have any copies of Schedule C, but they did have a book of "reproducible forms." Unfortunately, their photocopy machine was broken. I spent two hours going there and coming back, because I got caught in a traffic jam, which I can't really blame on the IRS, unless of course the traffic jam was due to a lot of people going to the public library that day to get copies of Schedule C. So far, we're talking 27 or 29 hours and 32 minutes, depending on whether you count the wasted trip to the public library.

Since I didn't get a copy of Schedule C at the post office, I thought I would take advantage of the new downloadable forms on the internet. So, I searched the net, looking for Schedule C, and after buying a book on Schedule C from Amazon.com, I finally found it, and printed it out. The print job took me 40 minutes, but you can*t blame the IRS for Windows 98.

Then there was Schedule SE, which I stupidly filled out the long form of, taking 1 hour and 52 minutes, instead of the mere 58 minutes that the short form would have taken. So far, it's taken me 29 hours and 24 minutes, not counting the two hours going to the post office and the 40 minutes waiting for a form to print out, but who's counting?

Then there was the dreaded Schedule D. According to the IRS, this form is supposed to take 6 hours and 41 minutes. That's if you get Part IV--"Tax Computation Using the Maximum Capital Gains Rates"--right the first time, something I seriously doubt anybody has yet to do!

This year, I started out slowly on Schedule D, with my older daughter's tax return, so I could work up the nerve and my math skills for the real challenge. She made $40 more than the standard deduction for dependents of $700. Ordinarily, she'd pay 15 percent on that $40, or six dollars. But, because part of her income was in the form of long-term capital gains, I got to complete Part IV of Schedule D, and get her tax rate down to 10 percent, and her tax down to four dollars, and thus save two lousy bucks. And, all it took me was a half day, more or less.

Actually, it was easy after I wrote a spreadsheet model to do the work. You see, I was getting a bit frustrated trying to complete Part IV by hand, and after I threw a vase through a window, I realized I was going about it all wrong. But, I'm not counting any of this time against my income tax forms because, like I said, I was doing my older daughter's taxes at the time.

Well, after one or two drinks to calm my nerves, I proceeded with my own Schedule D, and let me tell you, it was something to behold. Whereas I usually worry about the meaning of instructions like "line 38 enter the smaller of line 19 or line 27...," "line 39 enter the amount from line 36...," and "line 40 subtract line 39 from line 38...," this time I wasn't worried about anything. The numbers flowed quite naturally from my pencil. I hope they were right.

After filling out my forms, I looked back through my instruction booklet, and came across items such as, on p. 34, a "worksheet to see if you should fill in Form 6251." I didn't want to fill in Form 6251, so I didn't fill in that worksheet. On p. 32 begins a two-page worksheet for the child tax credit. I stopped filling in this worksheet at the bottom of the first page.

On p. 34, there is a little paragraph that says something about education credits. Mainly, it says "see Form 8863." The IRS does this a lot. Now, I appreciate, as much as the next fellow, the humor in the IRS not telling you everything you need to know to fill out your taxes in their instruction booklet. But, what I really found humorous in this little paragraph is the statement that you can't take an education credit if you are married filing separately. I mean, what does married filing separately have to do with an education credit?

I noticed little statements like "standard deduction for most people." I guess this means some people get a non-standard standard deduction. It's like transmissions on cars nowadays. Automatic transmissions now come standard, and you have to special order a standard transmission. On p. 23, there's a "simplified method worksheet" that makes me wonder what a "complicated method worksheet" would look like. On p. 30, there's a worksheet that's called "Deductions for Exemptions." I looked, but could not find a worksheet called "Exemptions for Deductions."

On p. 34, the instructions begin for the Earned Income Tax Credit. These instructions continue until p. 39, and include three worksheets and these instructions are followed by four pages of special tables. I don't know that the Earned Income Tax Credit is all about, but it must have something to do with being rich and well-educated. It would be hard enough for a poor person to complete the regular forms, no less follow the instructions pertaining to the Earned Income Tax Credit. I guess this is why they call it "a progressive income tax."

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Clifford F. Thies is a professor of economics and finance at Shenandoah University of Winchester, VA.