The Tax Code: Business as Usual

Campaigning for president, Steve Forbes once remarked: “Some people in Washington say we can’t afford the tax cut [that comes from a flat tax]; well maybe we can no longer afford the politicians.” Forbes’s lack of success in his two presidential runs, largely based on his flat tax proposal, is just one example of the many failed attempts to reform our current federal tax code.

One of the most obvious reasons to reform the current tax code is its sheer complexity. The code is over 60,000 pages and includes more than 1,100 forms and supplemental publications. Experts estimate that the total time Americans spend to file all of their paperwork is 6.6 billion hours. Many pay hundreds of dollars annually to pay tax professionals to file their returns, and businesses pay even more. “The present tax code is about 10 times longer than the Bible, a lot more complicated, and, unlike the Bible, contains no good news,” joked former Senator Don Nickles.

In the midst of a historic economic crisis, however, we need solutions now for economic growth and greater opportunities. The Heritage Foundation has cited Harvard economist Dale Jorgenson as saying, “Tax reform would boost national wealth by nearly $5 trillion.” Major tax reform would provide a significant economic stimulus and, if done right, would promote the common good through fairness, simplicity, and easing the tax burden of financially strapped families. Another key principle of any tax reform proposal should be putting an end to double taxation of income, especially the kind that punishes the responsible virtue exhibited by saving and investing.

Perhaps the grimmest news concerning the current code is the fact that Americans are shouldered with an increasingly ugly and immoral tax burden. According to the April 2009 edition of Reader’s Digest, a typical family in Philadelphia making only $50,000 a year pays $14,637 in total taxes. By scrapping the current code and enacting “The Fair Tax,” another major tax reform proposal, Reader’s Digest says that same family’s tax burden “would range from $8,600 to $12,500, depending on their spending.” The Fair Tax is a consumption tax that would eliminate the entire federal income tax code as well as all federal withholdings and deductions. Ending the practice of federal withholdings would have the added benefit of raising awareness: individuals and families might pay more attention to how much of their own money fills federal coffers as well as how the money is spent.

On April 15th, concerned citizens will direct their anger towards taxes and out of control government spending with national tea parties across our nation. These events tap into the kind of outrage that once caused our patriot ancestors to break with the British Crown (albeit the Founding Fathers’ outrage was directed at a mere pittance compared to our current tax burden). It would be beneficial if that sentiment was harnessed in a way to help reform our current tax code. Our country then could take the long overdue steps needed to upgrade our economy for a more competitive global market.

If the result of the tea party movement instead serves to foment partisan strife, it could hinder the worthwhile goal of fundamental reform and relief. President Obama has set up his own panel to examine tax reform, tapping former Federal Reserve Chairman Paul Volcker to oversee the task. Our new president has promised fundamental change from the way Washington does business. He could decide to revolutionize an archaic tax code that is perhaps the greatest symbol of business as usual in Washington, when one considers the number of special interest groups and lobbyists who benefit from a code whose loopholes they help to write.

But if the president merely seeks new and creative ways to raise additional revenue for a government that has failed as a steward of our finances, that won’t be change — only more of the same from Washington. Then we will be right back at square one, with politicians we can’t afford.

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  • Kathryn

    I am not sure a consumption tax would really focus the taxpayers attention on how much they are truly paying. I log sale tax in my financial software, but otherwise, don’t tend to notice it. I see the bottom line of how much something has cost–the item plus the tax. I don’t tend to separate them.

    We could stick with the income tax–one low rate for everyone, say 10% or less? (and eliminate all deductions including charity and mortgage etc). We already have it in the Constitution, I believe.

    BUT, and this is key, you must put a stop to employer withholding and force the tax payers to pay ALL their tax with a check (or an EFT) written by themselves, with their own hand, out of their own checking account, by April 15 (Quarterly could be an option). At present, most people only really see the bottom line of their paycheck–their net. Forcing them to write out a tax bill check 4 times a year or less will dramatically focus their attention on how much they are really paying.

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  • goral

    It’s not just the tax code – business as usual, it’s our politicians – business as usual.
    Why would any of them want to change anything when they know too well that this gives them power, supernatural power.
    Team Obama can dole out bail out bucks and make powerful and lasting friends.
    Yes Mr. President, you can have a twenty first century economy with twentieth century rules. You’re proving that.

    Oh, the economy is in the tank? Minor point, the confiscatory taxes are still flowing in and that’s the only point!

  • plowshare

    Well, we certainly do not want to eliminate deductions for dependents: that would discourage us from having more children. But once we start justifying exceptions like this, we are no longer talking about a flat tax.

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