Our Tax System Is a Moral Hazard

[hegemony]

http://www.smartmoney.com/personal-finance...a-moral-hazard/

[nothingtolose]

Interesting article

 

The same thing can happen with other refundable credits such as the earned income credit (it has a long and sordid history of fraudulent claims), the child credit, and the new American Opportunity education credit. When you give away free money in exchange for turning in some paperwork, you’re asking for fraud. It’s a moral hazard.

 

Not only that, laundering welfare payments through the tax system by calling them “refundable credits†is anything but transparent.

+1

 

H&R Block Deluxe (formerly TaxCut) offers "Audit support from a tax professional" when e-filed using their software. Maybe worth it for the peace of mind although with any kind of a complicated tax case or tax court appearance a CPA is probably going to cost $$$. The current HR Block Deluxe deal is 15% off download/online.

Edited January 21, 2010 by nothingtolose

[Kevin20]

Not only that, laundering welfare payments through the tax system by calling them “refundable credits†is anything but transparent.

 

 

 

This has always been my pet peeve. If we want to direct government spending to give needy people money -- fine, it's called "welfare", and it's a government expense.

 

Misusing the taxation system and mislabeling this welfare as "tax refunds" for people who don't pay taxes is a cynical & dishonest vote-buying ploy that only a politician could love. And what further infuriates me is that "tax refund" welfare doesn't count as government spending on the federal budget: it merely counts as less taxes collected -- a lie which then lets the government tax and spend and redistribute without even calling the expenses "spending".

[hurricanesfans27]

Not only that, laundering welfare payments through the tax system by calling them “refundable credits†is anything but transparent.

 

 

 

This has always been my pet peeve. If we want to direct government spending to give needy people money -- fine, it's called "welfare", and it's a government expense.

 

Misusing the taxation system and mislabeling this welfare as "tax refunds" for people who don't pay taxes is a cynical & dishonest vote-buying ploy that only a politician could love. And what further infuriates me is that "tax refund" welfare doesn't count as government spending on the federal budget: it merely counts as less taxes collected -- a lie which then lets the government tax and spend and redistribute without even calling the expenses "spending".

 

 

dont turn this political

 

 

 

[TroyP]

I say make the tax code more complicated. More complexity = more billable hours = bigger bonus.

 

But I'm in the minority.

 

At the end of the day, tax simplification just isn't going to fly in this country. The current system has cleverly developed to provide Congress an unreasonable amount of power, and I seriously doubt they'll be eager to give that up. Every deduction and credit is a way for them to fund the programs near and dear to them by using economic incentives. They wanted to encourage people to buy homes, so we have a mortgage interest and real estate tax deduction. Eventually, too many people bought houses, they couldn't afford them, and the housing market tanked. Congress elected to fix this problem by giving people tax credits to buy even MORE houses. Brilliant. They wanted people to buy cars this year, so they gave people a deduction for auto sales tax on new cars this year. They want to encourage charitable giving, so there's a deduction for that. Want a college education? There are credits AND deductions for that. They've built a system that's so complex that they have to sort out the details in court (see the recent articles on the Nurse fighting for the deduction for her MBA), and doing so takes YEARS.

 

But each time they make a change, we all get manipulated, and they hit us right where they know we'll listen, in our wallets.

 

It's clever really, and the system will never go away, because in general, the kind of people that run for Congress are the kind of people who see us as pawns in a greater game. It doesn't matter what brand of politics they subscribe to, they all love power, and the tax code is the ultimate demonstration of power.