Would a flat Federal tax system be better?

Did you pay someone to do your taxes this year, or are you going to?  How much will that cost you?  If you are doing your taxes, how much are you paying for tax software and e-filing fees, and how long did it or is it going to take you?

For us, it took me about 5 hours and cost us $130 this year.

Think about a long book that you've read lately, or even long ago.  According to my (admittedly limited) research, the US tax code has about THREE TIMES as many words as the Bible (which I'm just guessing most people would consider a long book).  I don't think there are many people who would argue that our tax code does NOT need simplified.

I've wondered for a long time, what if we just had a flat rate Federal income tax?  Some states do this, although admittedly every one I've lived in also has a set of simplified deductions.  Our FICA Social Security tax is a flat rate (up to a set maximum, which could be an argument and blog post all of its own, believe me!).  Sales tax is a flat rate.  Property taxes are flat rates (although there are also often homestead and other exemptions built in.).  You'd be hard pressed to think of another kind of tax that is less of a flat rate system than our current federal tax system is.

Personally, I know a lot more people who hire their taxes done now than when I first started out in the working world.  It has gotten so complicated that relatively few people feel comfortable doing it on their own.  And if you do, you'd better believe you use TurboTax like I do.  I remember the first time I went from doing our taxes by hand on paper to using TurboTax sometime in the late 90's.  It went from taking me a few days to just a few hours.  But, should we really need a complicated software package or an H&R Block in every WalMart just to file our taxes?

There are a lot of arguments out there in support of some type of flat rate federal tax system for the US.  In most cases, this would still include some basic deductions, and often not even kick in with a federal tax at all until household incomes that most would consider middle class.  For example, all those arguments about how can half of us get away with not paying federal taxes at all would most likely still hold true.  See explanations of how all this might work here, here, and here.  But please note that I endorse no particular political party in my personal support of a federal flat rate tax.

Now I'll tell you a little about my personal situation while trying not to reveal what we earn (because, of course, that's none of your business).  Suffice it to say that I'm in market research married to an engineer, and we both earn surprisingly average salaries for our chosen fields.  We aren't getting rich doing what we do, but especially when we both work, we earn a comfortable living and maybe even can afford a vacation now and then, all while we worry whether we are putting enough away for retirement, for out kids' college educations, and whether we are giving enough and being socially responsible enough in general.

But, 2012 was the very first year in our marriage that I did not contribute to our income in any taxable way.  I was shutting down my business and then looking for a job that didn't materialize.  Now, that didn't make it the lowest it's ever been, but having just Darrell's income made our household income lower than it had been in a long time, all while maximums for some types of deductions increased with the years.  And we were living in the same house where our incomes had been higher.

This means our effective tax rate was fairly low in 2012, and actually, it could stay fairly low if I earned significantly less than Darrell or if I only worked part time.  But that's not what happened.  I got a full-time job in 2013.  Now, I didn't work the entire year though.  But the long and the short of it is that we earn enough now to start losing some deductions many middle income folks can still enjoy.  Plus, we did not buy a more expensive house to go along with our increased income (hence, our mortgage interest and property tax deductions were about the same in 2013 as in 2012).  We gave about the same amounts to our church and to charity.  But we sure gave a lot more to Uncle Sam.  I have charts to prove it:

Our income increased by a factor of 1.6 in 2013 compared to 2012.  That sounds great, and it is.  That extra 60% is paying ahead on our house and saving for college and vacations again, things we simply couldn't do on just Darrell's income.  But take a look at our federal tax increase.  Our effective tax rate went from 3.8% in 2012 to 11.1% in 2013.  Looking at the raw dollars we gave Uncle Sam, that increased by a factor of 4.7 in 2013 compared to 2012.  So, our tax rate went up three times as much as our income.  Can I just say ouch!

Did we get a fat refund for 2012?  Yes.  Did we underpay and have to fork over more in 2013?  Sure did.  You know what I would have rather had happen?  I would much rather have it be a lot easier to estimate how much we owe based on a simpler, flat (or at least flatter) federal tax rate.  But maybe that's just me.  Feel free to sound off if you disagree (or even if you agree!).