Broken Record

Basically all of Wonk the Plank’s rants about tax justice say the same thing. We should adopt a simple, transparent, fair tax system with a broad base, instead of what we’ve got, which is a Byzantine system with high rates but confusing loopholes carved out for almost everyone under the sun.

Last night, Wonk the Plank was checking giving a final review to a tax return another volunteer prepared for a very kind 77-year-old woman. At the last minute, we realized that the other preparer had forgotten Maryland’s special exclusion for pensioners:

Complete the Pension Exclusion Computation Worksheet shown in Instruction 13 in the Maryland resident tax booklet. Be sure to report all benefits received under the Social Security Act and/or Railroad Retirement Act on line 3 of the pension exclusion worksheet – not just those benefits you included in your federal adjusted gross income.

To receive the benefit of the pension exclusion, be sure to transfer the amount from line 5 of the worksheet to line 11 of Form 502, and complete the remainder of your return, following the line-by-line instructions.

Oh, is that all? Wonk the Plank’s catch saved our retired taxpayer about $370 and probably would have gone uncorrected. It was especially galling to us because we are nearly certain that we’ve flubbed this very issue in the past – for other elderly taxpayers that were just as kind as the lady we helped last night.

Is This A Great Country Or What?

Once in a while, Wonk the Plank lurks the tax forum on Craiglist and lets the bizarre questions and answers just wash over us like a cool rain. We watch as 4-5 posters provide answers (often contradictory) and, for the easier questions that we are familiar with, pick out the right answers. Sometimes we will even be able to recognize the grain of truth in an otherwise garbled answer…

This is how most of us get information about taxes: asking friends, neighbors and – if we get desperate enough – perfect strangers on the internet to help us understand the tax rules. Since no transparent and understandable set of tax rules exists, information is passed down from the high priests of tax law to the taxpaying proletariat in a bizarre game of telephone.

Today, while Wonk the Plank was out preparing taxes at the MLK library, a homeless man stumped us, asking why he didn’t get the $300 rebate credit included in his 2008 tax return. (The rebate recovery credit is given to anyone who somehow didn’t qualify for a stimulus check in 2007 that was eligible in 2008 instead.)

Wonk the Plank’s taxpayer had only a little more than $500 in annual income, so he didn’t meet the $3,000 minimum test, making him ineligible for either 2007 or 2008. It took Wonk the Plank (with several years of experience doing returns) about 15 minutes of research to figure out that this was so.

When a homeless man with $500 in annual income can’t understand his tax situation without help, the tax system is pretty effed up.

R&D at AIG

With Congress mulling a confiscatory “Bonus Tax” that sounds like something straight out of Atlas Shrugged,they’ve summoned AIG interim CEO Edward Liddy to Capitol Hill to give ‘em the old razzle dazzle.

Liddy, he reminds us in an opinion piece in this morning’s Washington Post, joined AIG in September 2008 to try to clean up the mess there. His annual salary is $1, he reminds us. Oh, and he did he mention he only became CEO in September?

Meanwhile, Treasury Secretary Geithner promised to trim AIG’s $30 billion aid package by $165 million, the amount of the bonuses in question. We know Geithner is smart enough to know realize his recapture is just and sooth the nerves of the dullards who don’t understand that money is fungible. We wonder if it bugs the Secretary to engage in such an intellectually dishonest manoeuvre for the sake of politics and if it’s distracting him from the real work of fixing the economy.

Anyways, it promises to be a spectacle and you can bet Wonk the Plank will be tuning in.

Plank Of Household Status

Our tax code has relatively high rates but is chock full of deductions and credits for everything under the sun. It’s like a big supermarket with high prices, but where almost everything is on sale.

Once in a great while, a taxpayer will find himself in aisle 4 needing a can of sesame oil but stuck paying full price.

That’s what happened to Michael, a DC resident whose taxes Wonk the Plank prepared recently. He was a single man fully supporting his live-in girlfriend…meaning he almost could file under the advantageous “head of household” status. Unfortunately, that almost meant a difference of more than $500 on his tax refund.

We can miss out on big savings when we don’t do the things the tax code tells us we should do, like borrowing exorbinant sums to finance higher education or renting instead of owning a home.

Michael jokingly asked Wonk the Plank how much he would save if he married his girlfriend. We gave him our usual advice: our strong recommendation that tax consequences should not dictate those kinds of decisions.