Yes it's tax season again. One of the many common recurring questions that taxpayers have every year is; "Why don't they make the tax system simpler"?. I guess everybody has some notion that if everybody paid some flat amount of tax, the whole system would be easier. Well that certainly would make my job easier but, rest assured it's not going to happen.
The simple fact is that our tax laws are not just a method of raising revenues. It is also used to discourage and to encourage our citizens to engage in certain activities. Tax laws are complicated and quirky partly because they are used as a way to set national economic and social policy. For example:
(1) Non Taxable IRA Contributions: This law is set up to encourage savings for retirement. Simply because if you don't then, later in life you become a burden to government for food and housing.
(2) Non Deductibility of Tax Penalties: This tax rule is designed so that individuals and businesses that do not abide by tax laws, do not get rewarded by being able to deduct tax penalties assessed. This nullifies, to some degree, anyone's ability to gamble on doing something they shouldn't because in the end any penalty shields other income from taxes.
(3) The Earned Income Credit: If your income falls below a certain level, this is a credit you receive, even if you paid no income taxes at all. This is called a refundable tax credit. It's the governments way of "Re-Allocating" tax dollars to poor citizens. (Who said taxing the rich and giving it to the poor is something new?, We have been doing it for many years.)
You really have to do a lot of reading between the lines to understand all the policy that is written into our tax laws. Additionally, the laws are complicated because the human mind is very creative. For every rule you make, someone finds a creative way to circumvent, to contest and to create the need for further complications.
Like I said....It's not that simple!
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