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David Reynolds | Taxing issues

Question: What is this nation’s largest industry? If you live in river city north of here, you might say it is the federal government, along with GM, Government Motors. (Are they not one?) Or if you travel along any ugly commercial strip, you may think that it is the fast food industry. No need to guess agriculture, steel, coal, timber, or any of those worthwhile industries which improve our lives. Those were last century’s answers. 

As for today, the answer is (drum roll, please): Tax compliance! Yes, folks, according to the IRS, no less, we spend 7.6 billion hours a year complying with the filing requirements of the federal Internal Revenue Code. All these hours translates into more than 3.8 million full-time workers. Cost? Around $200 billion. And this excludes all the extra sweat poured into our state and local tax returns!

Thus, doing taxes may not be what we do best — but it is what we do most. The new America is on the verge of becoming the old China. Instead of doing each others’ laundry, we will be doing each others’ taxes. Even now, 60 percent of all taxpayers pay someone else to unmask the mysteries within the U. S. tax code. It now takes 70,320 pages in the Standard Federal Tax Reporter to record and explain the law, regulations and related material. Since 2001 there have been 3,250 changes to the tax code itself. That averages out to more than one change a day! And the number of words in the code has more than tripled since 1975.

Still, in spite of the length governments go to make sure all taxpayers comply with the law, there is always a skillful attorney out there who knows a page or two that has been left out of all those rules and regs.

Here’s a true case. An elderly single gentleman amassed $2.1 million in stock losses. (Not too hard to do last year.) However, the law only allows a $3,000 annual net carryover loss. In order to speed up the carryover process before he dies, the gentleman was advised to marry a lady with large capital gains. Jointly they could offset losses against gains, then split the considerable tax savings between them. No need to live together, just a prenuptial agreement that the “marriage” would end as soon as his losses matched her gains.

So, whether you favor bigger or smaller government, I trust that you do not look kindly on mixing marriage and taxes in a legal shell game to outsmart the IRS. Unless, of course, you make your living from the complexities of the tax code.

Yes, we need a simpler tax code. But will we ever get one? Probably not. And why not? Any significant tax reform is likely to have vocal losers and largely silent winners. Representative government functions on the squeaky wheel theory. It listens and reacts to those who make the most noise. The silent majority loses.

As a former liberal who spent considerable time inside government walls, I can not close this column without reporting on what can happen when government does not quite know what to do with all the money it collects. This second account took place during Lent at St. Celilia Catholic Church in Rochester, Pa., near Pittsburgh. A state inspector, there to inspect the church’s kitchen, spied pies being unwrapped for a church fundraiser. As you can imagine, the pies are simply delicious. But they are also forbidden in my home state. The pies were baked in ovens that were not inspected. They were baked in the parishioners’ homes. How awful! How illegal! No $35 inspection fee paid. Therefore no inspection. And therefore no yummy coconut-cream pie from Mary Pratte. Thus “Piegate in PA.”

Maybe somewhere in this once sane land the sun is shining. And maybe someday everyone will be allowed to buy a delicious homemade pie at a church fund raiser without our home ovens being inspected. But not until we cut taxes will such foolishness end. Then government will be forced to think up better things to do with our money than go after little old ladies baking pies.

Shall we protest? Shall we again row out into Boston Harbor and throw tea in the water? Shall we let everyone know, not just the British, that we mean it this time?

Sorry, I am getting too old for such protests. Rather I will pull up a chair and enjoy Marge Murtha’s baked farm apple pie, freshly smuggled out of her Pennsylvania kitchen. Please join me. Together, we will forget the heavy hand of government.


– Column by David Reynolds

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