Flat Tax Would Be Our Salvation

In its March issue, Money magazine reported the results of a test it conducted of accountants and other professional tax preparers. They asked 45 of these experts to complete a tax return for a fictitious family. The results were astounding.

Not only was every answer wrong, no two experts even came up with the same answer! Fewer than 25 percent of the professionals even came within $1,000 of the right answer. Perhaps the most frightening result, however, was the wide range of answers. The tax bill came to anywhere from a low of $36,336 to a high of $94,438.

Of course, we all know why, don’t we? It’s because we have a tax law even the Internal Revenue Service can’t understand.

In 1993 alone, the IRS gave taxpayers inaccurate answers to tax questions 8,500,000 times. While one might be tempted (for about one millisecond) to expect the IRS to take responsibility for these mistakes, think again. If you underpaid your taxes as a result of wrong answers from the IRS, who do you think was held responsible? Of course. You were.

The IRS sent out 33 million penalty notices in 1993, demanding money for 140 different reasons. This penalty process has become so absurd, one taxpayer was fined $155.27 for an underpayment of one penny. In a similar case, the IRS attempted to fine a company $46,806.37 for an alleged underpayment of 10 cents.

The IRS has 480 different tax forms. Every year, the agency sends out 8 billion pages of forms and instructions. Laid end-to-end, this morass of paperwork could circle the Earth 28 times. Environmentalists will be dismayed to know that 293,760 trees give their lives each year so the IRS can do its job. Did you know that the U.S. tax code is nearly 7 times longer than the Bible? That it is so complicated the instructions for even the 1040EZ “easy” tax form contain 31 pages of “fine print.”

Of course, all this paper-pushing doesn’t come cheap: The IRS’s budget has soared from less than $300 million in 1955 to nearly $10 billion in 1995. The agency employs more than 100,000 workers, more than the total employed by the Occupational Safety and Health Agency (OSHA), the Environmental Protection Agency (EPA), and all other government regulatory agencies combined.

But the cost of the IRS’s budget pales in comparison to the cost the tax code imposes on the U.S. economy. According to an IRS-commissioned study, filling out tax forms requires 5.4 billion hours of taxpayers’ time each year. And as a recent Fox News survey showed, the system has become so confusing that half of all taxpayers now pay someone else to figure out their taxes.

All this time and money adds up. According to the Tax Foundation, income taxes impose $157 billion of “compliance costs” on the economy, an average of more than $1,300 per taxpayer. Finally, we shouldn’t forget to mention that taxes are higher than they have ever been in the nation’s history. Taxes now consume the largest portion of the average family’s budget, exceeding the cost of food, clothing, housing and transportation combined.

It’s even worse for businesses. The business side of the tax code is a quagmire of complexity that makes the 1040 form seem simple by comparison. To cite just one example of this nightmare, a provision called the “alternative minimum tax” forces many businesses to calculate their tax bill two different ways - and then send the government whichever amount is greater! All told, the “compliance burden” on business is twice as severe as it is on individuals. Small businesses are hit hardest, incurring more than $7 of costs for every $1 collected by the government.

These frightening statistics are not evidence that IRS agents are bad people or that the agency wants to violate people’s rights. The real problem began in 1913 when the first income tax was approved. Ever since, politicians have manipulated the law, tinkered with the rules, and engaged in so much “social engineering” with the tax code that it has become an incomprehensible mess.

The only way to address these problems is by enacting a flat tax: a single, simple rate for everyone to pay, without all the loopholes, exemptions and whizbang provisions that characterize the current system. All you, the taxpayer, would be obligated to provide - on a tax form the size of a postcard - is your total income and the size of your family. The money families and businesses now spend on lawyers, accountants and lobbyists would be freed up for higher wages and more investment, thus helping make America more prosperous and competitive.

Or, we could just keep having the same recurring tax nightmare year after year.

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