FreedomTalks

Scrap tax code for system that’s less wasteful
By TIM CRANSTON

Another Tax Day looms. Our annual tax ritual requires the average American to expend more than 26 hours filing a standard 1040, and more than 60 percent of us will seek professional help. The reason: The U.S. tax code now exceeds 60,000 pages, and those pages often give conflicting advice.

No wonder Jimmy Carter declared back in 1976 that our tax system was a “disgrace to the human race.” It inhibits economic growth and promotes corruption. Tax Day has become an embarrassing national symbol of waste and abuse.

Every year, Congress adds, extends and changes tax deductions, credits and other special preferences. Because of these loopholes, compliance is a nightmare and the overall complexity is mind-numbing. Worse, the final result is often unfair: taxpayers with similar incomes can game the system and pay vastly different tax amounts.

Filing costs $125 billion
In fact, the U.S. Department of Treasury now estimates the total cost of complying with the income tax at $125 billion a year. (Other estimates are as high as $194 billion.) Those amounts are a staggering waste of resources. By way of comparison, the entire U.S. automobile and auto parts manufacturing industry added $120 billion to the economy in 2004, according to the National Association of Manufacturers. Looked at in another way, the 6.6 billion hours we will collectively spend completing our taxes this year is more time than it will take to build every car, truck and van produced in the nation. America, once a land symbolized by the open road and beautifully designed muscle cars has become a nation of tax forms and accounting pencils.

The code’s $125 billion cost is $125 billion in investment capital we do not have for the U.S. economy, or for our children’s education, or for the charities that we want to support. Unless Congress acts now, tax complexity will waste more than a trillion dollars over the next eight years.

This $125 billion is five times the $25 billion of personal income that the entire state of Montana generated in 2004. The tax code’s loss to our economy is so immense it is as though the federal government has assigned everyone living in Montana to do nothing except complete tax forms for five years. Thanks, Congress.

The IRS audits are up 21 percent over the past year, which only compounds the nation’s misery on Tax Day 2006. After all, even the IRS does not understand the code it has been forced to administer. The IRS sends out 8 billion pages of forms and instructions each year, which, if laid end to end, would circle the Earth 28 times. Nearly 300,000 trees are cut down each year to produce the paper on which IRS forms and instructions are printed. So this complicated mess even damages our environment.

Tax-code albatross
It is clearly time to transform the tax code. We need to scrap entirely the current code and start over with a simple and transparent design that is fair and makes sense to everyone. If, for example, we tax the broadest measure of income — adjusted gross income — at four effective tax rates ranging from 2 percent on incomes of less than $20,000, 5 percent on incomes of less than $50,000, 10 percent on incomes of less than $200,000, and 25 percent on incomes greater than $200,000, we would raise the same tax dollars that we raise under the current code — and file by postcard. We could also apply the $125 billion foregone compliance cost to economic investment, schools and charities.

Tax transformation is a huge opportunity to boost our well-being. Instead of creating new government bailouts to inefficient American businesses, Congress needs simply to free our economy from the wasteful tax-code albatross. The goal should be a tax code that is simple, fair, honest, transparent and flat. Let’s make freedom work. Americans, start your economic engines!

Billings businessman Tim Cranston is the local chapter director for FreedomWorks, a nationwide citizens’ policy activist organization headed by former U.S. House Majority Leader Dick Armey.

Copyright © The Billings Gazette, a division of Lee Enterprises.

This entry was posted on Wednesday, April 12th, 2006 at 12:28 pm and is filed under States, Taxes. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.