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You probably recall a school lesson in your past about our “bicameral legislature” or the “separation of powers” between our three branches of government. But did you ever get a lesson in graduated income tax rates, the personal exemption, or how freelancers pay into Social Security?
When the president tries to extract a pledge of loyalty from someone in the Justice Department, an alarm goes off about those “separation of powers,” and as a citizen, you understand a basic tenet of our democracy is being tested. But what about when states propose funding budget shortfalls by increasing the sales tax (which is one of our most regressive taxes), or politicians quietly double the threshold on the estate tax (one of our most powerful tools for fighting the widening wealth gap)? Do these actions trigger the same sense of alarm?
Our founding fathers recognized that the maintenance of our democracy would require a population educated in basic civic responsibility. The establishment of a public school system was a part of this understanding — without public education, civic education would be reserved for the wealthy, and the uneducated masses would be subject to the whims of tyrants. Public schools and civic education have been a deliberate cornerstone of our democracy since the American Revolution.
We should all be educated in the basic structure and functions of our government so that we can advocate for ourselves, and keep our democracy healthy. While civic participation is not as robust as it could be, it exists. People do vote; they do advocate for different policies and appeal to their legislators, or run for public office themselves. So why in our democracy is the one part of civic engagement that is mandatory — paying taxes — not also a part of our basic civic education?
From my vantage as a tax accountant for artists, I can see how acute this lack of information is. In my tax practice, I regularly explain the basic mechanics of tax-sheltered retirement plans and clear up the near constant confusion between itemized deductions and the business deductions one takes on one’s Schedule C. I give workshops to packed room after packed room of professional artists who have never had a lesson on how self-employment tax works, how to pay estimated quarterly taxes or how their self-employment tax pays into Social Security and Medicare.
I say this with deep respect. Artists and creative professionals are generally better educated and more civically engaged than the average citizen. So, if this population is under-informed on basic tax issues, I think the problem is much bigger. I think we have a civic education crisis.
Again, the point of civic education is to cultivate an engaged, participatory population. One that engages in honest, intellectually rigorous debate and makes good faith arguments about fairness and the society we want. And what place is more important than the mandatory civic engagement of tax-paying? What shapes our society more than the money we all pay into it? What is more worthy of scrutiny than who pays a disproportionate share of their income compared to everyone else, and why? What is a more important civic question than how our tax dollars are apportioned? What is a more fundamental civic question than what kind of society do we want to build with our tax dollars?
I see a direct link between the general lack of understanding of our tax code and the thorough lack of advocacy on the part of the people most affected by it. Without this education in how our tax system is structured and who pays what proportion of their income, we can’t engage in shaping a fairer tax policy. When politicians lie about who pays taxes, these lies don’t get called out properly, because they aren’t obvious to everyone. When regressive tax policies are floated — such as increases to sales tax, which are disproportionately paid by the poor, people often don’t realize that these taxes are regressive, so fairer alternatives don’t get surfaced. The estate tax (the “death tax” label is dishonest) — which is a clear solution to a widening wealth gap, based on centuries of evidence and decades of policy work, gets chipped away at constantly, without enough defenders rising up to support it.
As the massive new tax law changes were being passed, I kept wondering why were people not more up in arms over:
- the dramatic reduction in charitable contributions that would likely result from doubling the standard deduction
- the punishing of electorates in high-tax states with the capping of state and local income tax deductions and
- the boon provided to the wealthiest families in the US by doubling the estate tax exemption. In 2017, before the tax law change, only 5,500 estates paid any estate tax. The Tax Cuts and Jobs Act of 2017 is expected to reduce that number to 1,900).
All of these policies are the opposite of what most Americans want. Polling from the months before the passage of the bill made clear that Americans want higher — not lower — taxes on the wealthy and on corporations. But where was the debate? The bill was passed with breakneck speed – that is one reason for the lack of debate. But was our society’s general lack of tax education another reason?
But there’s hope. I want to tell a story of a tax victory won by artists. The last time a tax bill this big was passed was The Tax Reform Act of 1986. In that law, Congress forced artists, writers and performers to portion out the costs of producing their work and take the expenses on their taxes only when that work was sold. The law was so broad that even small amounts of material were to be accounted for in this way — so a painter was supposed to calculate the amount of paint she used on one canvas, and then only take that expense on her taxes when that painting sold. This left artists with an accounting nightmare as well as a dramatic reduction in their ability to claim expenses. Julia Child, the author and chef, protested the ridiculousness of the provision by saying, “How do I allocate the oregano?”
But the part I love is that we won. Artists understood the impact of this law, and they organized and protested. And what’s more, when the resulting law change did not go far enough, they stuck with it, protested more and got it changed again. The result is that independent artists, writers and performers no longer have to keep inventory. We are allowed — by the sweat of our protesting peers — to expense all of our supplies in the year we buy them.
So disengaging and accepting our fate is not a given. Correcting unfair tax laws is possible. But first, we do need to understand the laws.
I personally do a lot of education on taxes. But the problem is nationwide. And I’m just using the tools I have — I don’t think it’s the role of business to fill this gap. This is a failure on a societal level that needs a policy solution.
When we have the education, we make better decisions, and we stop unjust laws from being passed. But when we check out or succumb to the idea that taxes are too complicated, we leave the laws to be crafted by lobbyists for well-funded groups that typically have a lot to gain.
Everyone pays taxes. That is the one civic engagement with the most participation, and taxes are at the root of all other policies. Our advocacy won’t be possible until we understand how we pay, who pays what, and who is getting the worst impact. We need tax education so we can better engage as citizens.
DISCLAIMER: True tax advice is a two-way conversation, and your accountant needs to hear your full situation to apply the rules correctly in your case. This post is meant for general information only. Please don’t act on this alone.