Friday, April 16, 2010 - The Progress & Freedom Foundation Blog

Longing for Tax Day Simplicity

With another income tax day behind us, this year's penance may be the last "simple," "unfettered" return we file in a while.

The CBO projects that with current policies in place, addled by a wave of retiring Americans, our tax burden as a nation (in terms of revenues received through income, payroll and excise taxes) will rise 1.5%, to nearly 20% in 2020. That growth aside, revenues will still fall nearly 5% less than Uncle Sam will be spending at that time.

Thus, according to a growing coterie of pundits and officials, more taxes are on the way (spending cuts would be nice, but I digress).

Newsweek's Robert Samuelson points out:

"Just about everyone will be tempted to deplore federal budget deficits--and do nothing about them. But this escape route may close; many economists warn that endlessly large deficits risk big jumps in interest rates. Someday, higher taxes may be unavoidable."

Where's the money going to come from?

Some of the previous administration's tax breaks for the "rich" will expire; dividend and capital gains taxes will also lift; and, of course, there are numerous taxes in the recently-passed healthcare care bill. Some experts, such as ex-Fed chief, Paul Volcker, have even suggested imposing a value-added-tax on purchases.

The Fed's not alone in its search. The states have their fair share of problems, too, and they'll be after every red cent they can uncover.

In the next fiscal year alone, states face nearly $180 billion in budget deficits, with many in dire straits. They have many of the same pressures that Washington does in meeting the needs of an aging populace, as well as an increasingly service-oriented / needy citizenry (age aside).

But those state guys are pretty clever.

You may think using the Internet allows you to purchase items tax-free, avoiding the tax collector. Think again. More than likely, your state has a "use tax," which legally requires you (not the remote retailer) to pay the state levy for your Internet purchases.

A small but growing number of states are working to impose so-called taxes, forcing remote retailers with state "affiliates" to collect applicable sales taxes. For the time being, this remains the exception. Perhaps more disturbing, however, are some new laws and proposals which seek to make Internet salesmen tax tattlers.

As Declan McCullagh of CNet News writes, Colorado recently adopted a tax reporting scheme that requires remote retailers to share customer data - i.e., divulge total purchases of customers - with the state. More detailed lists would be mailed to customers, informing them of their use tax obligations.

Hey, if you owe the tax, you should pay it. But, does government really need to know where I bought my stuff? What about all the weird stuff I purchase from weird places? And, do I have to endlessly loiter around our mailbox to intercept the more detailed accountings so my wife doesn't find out what I've purchased when she gets the mail?

Very upsetting (the compelled disclosure, not the weird stuff).

Sadly, I do not see this collision of interests / rights decreasing any time soon. IT is ubiquitous, helping us "narc" on ourselves. HIT, smart grids, HOT lanes, Internet purchases, RFID, smart homes - all these and other IT used by us to make our lives better - the data derived from its use, like cash flow, won't sit still. It will circulate. It has to.

As it pertains to business, I harbor fewer concerns. If businesses abuse this rich dataflow, they'll be punished in the marketplace (call me naïve). But government's another thing. The more government compels and directs this traffic to itself - for tax compliance, or whatever the public interest spin of the day might be - the greater chance we might see our liberties eroded, either through unintended consequences, or nefariously.

As one story source in McCullagh's pieces states:

"The tax bureaucrats themselves may not take an interest in the data but the elected officials who oversee them might."

Bad business mostly affects the pocketbook. Bad government can result in loss of liberties. Stated differently, if my money's gone, hopefully I can earn some more. If my liberties are gone, they're likely gone forever.

The latter will make one long for the simple and unfettered pleasure of a 1040 form.

posted by Mike Wendy @ 4:51 PM | Capitol Hill , E-commerce , Generic Rant , Privacy , State Policy , Taxes