The Tax Man Cometh

Submitted by kvaughn on Fri, 04/13/2012 - 01:00

 As tax day looms, it is worth considering some of the biggest problems with our current tax code.

Our Tax Code is Too Complex

Title 26 of the current tax code is four times longer than the King James Bible; once you add in all of the associated regulations, its length triples to nearly 12 times the length of the Bible. And the code is growing by about 3% every year.

Experts Provide Wrong Answers

With the code constantly changing, it is perhaps not surprising that even the experts don’t understand the code. Even the government’s own studies demonstrate that their own experts are unable to properly interpret the code. Depending on who does the study and what year, the IRS help line has been shown to provide inaccurate or misleading answers 10-50% of the time!

The IRS is a Drain on Our Economy

The IRS employs over 100,000 people at a cost of $12 billion every year. And this is just the direct governmental cost. It is estimated that the full cost of compliance is more than  $430 billion per year or roughly 3% of our national economy. These resources are being wasted on red tape rather than creating real value to our society.

The Tax Code Corrupts Washington

Every year, our country spends $3.5 billion on lobbying Congress. Much of this money is devoted to getting special treatments in the tax code - and each successful lobbying effort results in even more groups investing to protect their own interests.

Taxed and Taxed Again

Politicians have become adept at hiding real tax rates by applying multiple taxes and including special provisions. The major federal taxes include (and there are many more state and local taxes):

  Employers payroll tax, which results in lower employee salaries

  Employees payroll tax, which results in lower take-home pay

  Federal income tax, which results in lower take-home pay, including

  Phase out of credits, deductions, and exemptions which result in higher marginal rates than the nominal tax brackets imply

  Corporate income tax, which results in higher prices for goods and services and makes investors more risk adverse

  And this is perhaps the most abused portion of the tax code when it comes to special provisions

  Estate taxes, which results in a disincentive to save

  Gas, phone, and other taxes, which result in higher prices for goods and services

There is a Better Way

The end result of this complexity is that most people feel that others are not paying their fair share. The left typically uses this as a rallying cry to “tax the rich”, but raising tax rates does not solve the problem of special interests getting tax breaks, it will only make this problem worse. Likewise, the right typically points out that roughly 50% of the country is not paying any net income tax, but permanently extending tax cuts will also just extend this problem.

The real solution lies in a simpler tax code. A flat tax, a fair tax, the 9-9-9, or any other simple solution will greatly reduce the regulatory burden on our society while giving all tax payers confidence that everyone is contributing to their government. I personally prefer a solution such as the Fair Tax, but any of these solutions will address or eliminate all of the problems cited above and result in a more robust American economy - and that is what all of our politicians should be focused on.

In Liberty, 

Ken