Etalkinghead

I was recently talking to a lady who told me she would have to see her financial advisor soon because she and her husband were nearing the “magic” age of 70 1/2, when the IRS requires people to start taking distributions from their 401(k) accounts or face stiff financial penalties. Why does the IRS get to tell us when we have to spend our 401(k) dollars?

Yes, I know a 401(k), for most people, is the best vehicle for tax-free growth of their retirement nest egg. However, because of restrictions like the one I mentioned above, I decided several years ago to hedge my bet and start taking a portion of the money that I had been putting into my 401(k) on a pre-tax basis, and put it, on an after-tax basis, into a Roth IRA, which is less restrictive than a 401(k). However, that’s a decision I should not have had to make.

And why is it that very few people question the requirement by the IRS that we spend time keeping receipts and preparing taxes? In essence, we are being required to perform accounting-type duties by the government — with no compensation. When someone is required to do work for no pay, he or she is essentially a slave — in this case, a slave to the IRS. I thought slavery was abolished in this country during the Lincoln presidency. Apparently, someone carved out some kind of government exception to the Emancipation Proclamation as well as the Thirteenth Amendment to the U.S. Constitution.

A few years back, after having spent some time preparing my taxes, I calculated the market value of that time by multiplying the average hourly rate of an entry-level accountant (information that was readily available on the Internet) times the amount of hours I had spent on my taxes, both the collecting of receipts and other data and the preparation of the forms. I then sent this information to the IRS and requested payment for my time. Needless to say, the IRS worker who responded to my request didn’t see the humor in it at all.

As long as we have the income tax, we will all continue to be slaves to the IRS. The keys to emancipation can only be found in the replacement of the income tax with a federal sales tax. Under such a system, our only responsibility as taxpayers would be to ante up at the cash register. That’s it! No more receipts to keep! No more time or money spent to prepare forms! No tax returns to file! No more unintelligible rules to try to figure out! No more deductions or exemptions! No more penalties or interest on back taxes you may have mistakenly not paid!

No more need for special savings accounts for retirement, education, medical bills, etc. — all savings would be put away and allowed to grow tax-free! No more fear of IRS penalties for spending some of your savings when you need to (or not spending it when you don’t want to) — and no more need to check the rules or ask permission! No more Alternative Minimum Tax! No more double taxation — money you earn would be taxed only once — when you spend it! No more worrying about the tax implications of your investment decisions — thus no need to use financial advisors for that purpose!

I don’t know about you, but I’m in favor of anything that would make my life easier and result in less responsibility and accountability on my part. That’s exactly what the transition from a federal income tax to a federal sales tax would accomplish. But is it too good to be true? Actually, such a plan is quite feasible. Now, many would consider a sales tax to be inherently regressive. However, it wouldn’t have to be.

To prevent an undue burden on the poor, all food items and medicines could be exempt from sales tax. In addition, certain other low or moderately priced essentials such as clothing could also be exempt. For example, a pair of $20 sneakers might be exempt, whereas a pair with all the bells and whistles selling for $100 would not. Congress could draw up the guidelines and adjust them every year or so to account for increases in the cost of living.

Unfortunately, there’s a catch — members of Congress will not act on such a radical overhaul of the tax system unless we the people overwhelmingly demand that they do so. Since Congress consists mainly of lawyers, it’s in their interest to maintain a complicated system that’s full of loopholes, legal jargon, and vague rules that the average person can’t understand. That way, when they cheat us and double tax our money, we’re none the wiser for it. Also, many special interest groups and their lobbyists, who have members of Congress by the seat of the pants, have a vested interest in keeping the current system, along with all the goodies they constantly siphon out of it.

However, in the interest of the average taxpayer, the system should be so simple that any sixth-grader could easily understand it. Call, write, or email your Senators and U.S. Representative and let them know you will no longer tolerate the federal income tax system and that you want it abolished and replaced with a sales tax. If enough of us will do that, they’ll listen.