Benjamin Franklin famously wrote: “In this world nothing can be said to be certain, except death and taxes.”
Everyone dies and everyone pays taxes. There’s payroll taxes (Social Security and Medicare), sales taxes, state taxes, local taxes, taxes on gasoline, alcohol and cigarettes.
It’s estimated that on average, Americans spend 34 percent of their annual income paying taxes. In Ohio, our total debt burden is calculated to take 96 days of collective work for us to pay off each year.
And then there’s the type of taxes that you can get back – income tax. Hundreds of millions of Americans file their tax returns every year, and 46 percent of those people will get their withheld income taxes back. Some will even get money they never had to pay in the first place (like the earned income tax credit).
For many of us, getting our income tax withholdings back every year is a sudden source of money that we had already written off as lost forever. It arrives suddenly from out of the blue, and can be used to pay rent, get the car fixed or pay bills. In 2011, about 40 percent of people reported using their tax returns to pay down debt, and 43 percent said they planned to save their refunds. We at the Clarion think that paying down debts and saving are very wise.
But we at the Clarion also know some people who like to use that magic money for more extravagant purchases: big screens, jewelry or gold teeth. And we’re fine with that. After all, somebody’s got to go out and revive the economy.
Some people get more money back because they have children to claim as dependents. The Clarion staff suggests that they take some of that money and use it to take care of those kids.
Taxes are a perennial political issue in the United States. Everyone has an opinion about what kind of things should be taxed and what sort of things those taxes should be used to pay for. Perhaps for that reason, we have one of the most complicated tax codes in the world.
We have entire organizations with the single function of helping customers figure out how to file their taxes correctly to get the best return and avoid shorting the IRS. In fact, in many cases it is easier for the US government to prosecute criminals for doing their taxes incorrectly than for their more serious crimes (think of Al Capone).
Luckily, most of us here at the Clarion don’t have to worry about capital gains or property taxes. We’re just happy to look in our mailboxes and see an envelope from the IRS with some bonus return money to help us start the year off right.