The Taxing Problem
Ah, April! The time of year when most of us brace to make tax payments or rejoice in receiving what is laughingly referred to as a ‘refund’ from the interest-free loan we gave the government. For many families, tax preparation is time-consuming and confusing, often requiring a paid tax preparer or accountant to avoid mistakes, penalties and over payments.
Over the years there have been many proposals to reform the tax system. A simple flat tax, with no deductions, is often discussed – sometimes avoiding taxing low-income families. There are proposals for lower, but still progressive tax schemes, with significantly fewer deductions (loopholes). Others have argued for replacing income tax with a tax on purchases, usually excluding food and similar essentials. There are states with no income taxes at all. Their budgets rely on other forms of taxes like corporate or sales taxes. On the other end of the scale are states with three levels of income filing – federal, state, and local.
The question we should be asking is, “why are we filing taxes at all?” The government already knows how much we’ve earned, our dependents, the taxes we’ve paid. Rather than an army of IRS drones endlessly checking our numbers, looking for discrepancies and criminalizing errors, what if we could just receive a tax bill and check their numbers?
I am willing to bet that you don’t personally know anyone who thinks the current income tax system is fair and logical. Members of Congress may complain about income tax collection, but decade after decade, real reform eludes us. The income tax laws instead become more complicated and a growing burden on American families.
Almost all proposed tax changes would be simpler, and arguably fairer than our current complex system. Despite this, none are likely to ever be approved by the type of Congress we have today. By simplifying the tax code, too much of the bureaucracy breaks down. Let’s look at some of the ‘problems’ tax reform would cause:
It is harder to punish success. A fair tax system would not allow politicians to steal earnings from successful people. While even liberal NY Magazine admits that the richest 1% pays 40% of our taxes, this bothers many in Congress. Recently, the idea of “taxing asset value” has been proposed. Somehow, Congress would force people to pay taxes on possessions that they simply own, but do not sell, adding another layer of taxes to goods that have already been taxed at least once if not more. No one knows how this could be made possible, or what would happen when those assets lose value.
Reduces the need for a huge workforce. According to a George Washington University project, there are more than 1.2 million tax preparers in the US making their living on the complexity of the tax code. In addition, according to the IRS, they employ about 75,000 full-time workers, spending over $12B a year, just to collect money from us. And the IRS is desperate to add to this tax collecting army. A recent ‘IRS Job Fair” in Utah hired people on the spot to quickly fill 5,000 positions in only 3 locations, according to the WSJ.
Pet Projects become harder to fund. Complicated tax schemes make it easier to levy charges to divert funds that politicians love. States do this all the time. In Pennsylvania, the Johnstown Flood Tax on alcohol was implemented to address the disaster in 1936. Decades after raising all the funds needed, the tax lives on, and was increased twice, to nearly 20% today. What the public cannot see they cannot object to.
Tax loopholes would dry up. Complicated taxes make for complicated loopholes that only a fraction of the public can take advantage of. A flat tax would mean that everyone must pay taxes. Closing loopholes is politically dangerous, with lobbyists and large money interests fighting to keep them at every turn.
We would need to spend less. A primary reason for convoluted tax schemes is that Congress simply spends far more than it earns. Expenditures are projected to exceed revenue for the foreseeable future, according to a report by the Heritage Foundation. A simple tax system that cannot be easily increased would require (horrors!) a balanced budget – just like 44 of our states, plus Washington DC, do every year.
Congress agreed not to offer free filing. The IRS proposed a free filing system to Congress in 2002. The $2B tax preparation industry responded with a ‘free file’ system that exists buried in the ads of tax prep corporations but is almost impossible to use. Congress incredibly agreed to never ‘compete with the private sector’ and not offer simple filing.
The simple reason tax reform is hard in America is that a simple, fair tax system reduces the power of Congressional bureaucrats by virtue of transparency to the voters. Flatter tax systems are also harder to modify to raise tax rates – all this works in favor of the public, but against the politicians who pretend to represent their interests.
As an elected member of Congress, I will work to move us towards “Return Free Filing,” where voters receive a tax bill that they approve, rather than the other way around. I will commit myself to promoting tax reform and will ally myself with representatives from any party who will support this reform. There are several good systems to choose from, and the public should have a voice in choosing the one they deem best. If that requires us to have a balanced budget, so much the better.