In “The Cuckoo’s Egg,” Clifford Stoll recounts how he spent a few hours answering his thesis committee’s oral exam question: “Why is the sky blue?” It’s a question my child might ask. Another is “Why are you and mom spending so much time on taxes?”
I had to summon Herculean strength to avoid interjecting the obvious editorial comment “because the bleepity bleep bleep tax code isn’t written in English or by human beings!” It doesn’t help that TaxCut starts sounding like:
Did you operate a non-farm subsidiary on the plain?
Did you work for a railroad with a train?
Not on a plain!
Not with a train!
I own a house
It has a mouse
I did not deduct it here here or there
But I’ll surely itemize on Schedule A, somewhere
I would not lie or cheat or scam,
But I hate income tax time, Uncle Sam-I-am.
(Sorry, I’ve been channeling Dr. Seuss. Again.)
Instead, I patiently tried explaining what taxes were. When she asked for examples, I rattled off a list, organized by category:
Money I earn
Business tax — The state’s take is 1.5% of my gross revenue. If I were in the incorporated part of my city, I’d have another 1%. Business I do out of state doesn’t count towards this total.
Federal income tax — 10 to 33%; this would be a lot higher if the tax system weren’t set up to favor businesses.
Social security — 13.2%, for retirement. (must… not… comment) As a business, I get charged for both halves.
Medicaire — 1.45%
Stuff I own
Property taxes are based on my home’s appraised value.
Car tabs — these are about $100 a year. If I lived in Seattle city limits, I’d have to pay another $300 towards the monorail.
Things I buy
Sales tax — If I actually want to be a good American and spend, spend, spend, I get dinged for 8.9% on non-grocery items like balloon animals, lawn darts, and tequila.
Insurances Because I’m risk averse, there are a bunch of miscellaneous insurances I have: medical (the most expensive), dental, home (because the mortgage isn’t paid off), auto (required to drive, unless I want to post a bond), earthquake (I had a 6.9 a few years ago and I live geologically close to an active volcano), liability (in case I hit someone with a lawn dart or a balloon animal), and life (to pay for the squadron of accountants to sort through the mess).
Retirement planning — I channel some of my profits into a SEP IRA, plus there are the Roth IRAs.
College planning — I’m putting a large chunk of change away for the kids’ college funds. I had been doing a 529, but this year I’m going to hedge by buying one of the “GET” programs, indexed on tuition. It’s gotta do better than my stocks, right?
I’m not sure how much of it made sense to her. I also obviously have no idea how much a 7-year old (almost) wants/needs to know about tax code. At least I didn’t try to explain accrual accounting!