"The hardest thing in the world to understand is the income tax." - Albert Einstein

I'm not surprised tax laws bumfuzzled Einstein. After all, this man thought in a non-linear fashion. Taxes are fairly linear. You get paid, and you pay taxes. That's it. Period. End of sentence.

Of course, it all changes when you actually MAKE money, opposed to a single person living alone and earning a minimum wage salary (How can that happen?). Then, the linear aspect changes and your obligations to Uncle Sam become multi-linear. They also become layered, hierarchical, parallel, and webbed. Even if you're an organizational wizard, there's no way to stay on top of the innuendos and changes involved in each line of your tax return.

In fact, I'm sure no one truly understands all the tax laws - including the IRS. The tax code consists of thousands of pages filled with detailed regulations. Some apply to individuals, and others apply to individuals who are students. If you're an individual who is a student and a parent, you've got more pages on your hands. If all of the above apply to you, and you invest, make interest payments, own a home, and run a small business?well?let's just say I would want a minimum-wage job again. Sometimes I think tax laws contribute to the dumbing and numbing of America.

Since many of us contribute a healthy percentage of our income to this guy, it might be a good idea to understand who Uncle Sam is (especially when our children think we're somehow related). What does he do with our money? When can we avoid paying taxes, and where can we take advantage of tax benefits? Why do we have to deal with all this in the first place?

Uncle Sam isn't that old, and he's quite diversified. He's male, he's single, and he's also still living where he was born. That should tell you something about this guy. He first arrived in Washington, D.C. during the Civil War, and he was initially created to pay war expenses. From 1862 until 1913, Uncle Sam - also known as Income Tax - had a spotty existence.

In 1913, the Sixteenth Amendment to the Constitution was ratified, providing Congress with the power to send Income Tax out into the states to collect money. The objectives of this mission were the equitable distribution of the tax burden and the raising of revenue. The initial tax was based on a flat rate, but it was soon replaced by a graduated tax system. Since 1913, the tax rates have grown during wartimes, fallen after wartimes, and fluctuated in between based on the general economy and the busy fingers and fiscal imaginations of Congress.

In 1913, the tax laws filled eighteen pages. In 1986, when tax laws were simplified, these laws filled more than 1300 pages. In 1998, Congress decided to restructure and reform the Internal Revenue Service (IRS) one more time. This reorganization is the largest in over fifty years, and it's intended to create four different divisions aligned by types of taxpayers:

• Wage and Investment: This division is for folks who file individual and joint tax returns.
  
  
• Small Business and Self-Employed: This is self-explanatory.
  
  
• Large and Mid-Sized Business: This will serve corporations with assets over $10 million.
  
  
• Tax Exempt and Government Entities: This division will serve employee benefit plans and nonprofit charities and government entities.

Uncle Sam doesn't like restricting himself. He'll also oversee departments for criminal investigation, appeals, chief counsel, communications and liaison, and a taxpayer advocate service. This doesn't include the actual functioning of the IRS, which would include human resources and plumbing problems.

In 2000, Uncle Sam collected over $2 trillion in revenue through 226 million tax returns. Not all those returns were paying taxes. Some were collecting refunds. It cost us $.39 for each $100 collected, according to the IRS. Although the IRS claims this is the lowest cost/collection ratio since 1952, that's still a bundle of money. This year, Uncle Sam employs approximately 100,000 fulltime-equivalent employees, and works within a budget of $9.4 billion.

The tax system would be less expensive if it wasn't such a wooly mammoth. Of course, I don't know what we'd do with even half the number of employees hired by the IRS if they were canned. That's the entire population of Huntington, W. VA.

Granted, this new streamlining of Uncle Sam (he must be on the President's fitness program) should help us abide by the law more efficiently, and with fewer headaches. Electronic submissions are a focus, with increased support in that realm. Payment options will broaden, with a nod to installment agreements and credit card options.

To offset our fears over lack of tax education, Uncle Sam is increasing taxpayer outreach with a 31% increase of employment in this sector this year, and will increase the number of employees hired for this endeavor by 8% next year. In fact, the IRS has filed a 168-page Fiscal Year 2003 Annual Performance Plan on their site so we can be educated about our new education.

I'm still not sure where most of my tax dollars go. I know if I don't pay taxes, I'm breaking the law. I'm also increasing the burden on my fellow taxpayers if I toss the 1040 in the garbage. The burden is there, and my obligation is to learn and obey. I'm happy my Uncle Sam is devoting himself to my service, but I'm inclined to take care of myself. I even line dance alone.

Join me next week, and we'll discuss concepts of billions, trillions, and tax basics. After all, you'll want to know how to handle that windfall of stock gains when the market goes up, right?

Until Next Week,
Linda Goin