OVERTAXES OUR PATIENCE
By George Marotta
As millions struggle with the last-minute chore of completing tax returns before
the April 15 deadline, it is timely to take a look at our system of financing government.
Our current system of taxing income is too complex and time consuming. Most important,
it discourages savings and investments. If we had a better tax code, our economy
would be producing another half trillion dollars of wealth.
The longer the tax code, the more complex it gets. The number of words in the
code has increased tenfold, from a half million in 1955 to 5 million in 1994. It
makes work for over 100,000 bureaucrats in the Internal Revenue Service.
Billions of hours are spent by taxpayers trying to comply with the U.S. tax code.
However, it is so complex that no one, not even the commissioner of Internal Revenue,
can fathom just what it really means! Last year, Congress passed several tax laws
that added 650 items to an already complex code.
It is estimated that over half of the tax filers need to seek professional help
to prepare their returns. Not even the members of the tax-writing committees of Congress
can fill out their own returns.
The war for independence which created our nation was based on the battle cry
"No taxation without representation." Independence gave us "taxation
Today, our tax laws are complex "because of representation" (politicians
are constantly promising the electorate that they will make changes in the tax code
which would benefit their constituencies). Earlier in our history, the government
trusted taxpayers to assess themselves the proper amount of taxes to be paid. During
World War II, the withholding tax system was born, and collection was put on automatic.
Pay-as-you-go is the only way government can collect the huge taxes now levied.
Because tax rates have become so burdensome and tax evasion so common, the government
(with the help of computers) tries to keep track of all sorts of income received
by taxpayers. It then checks some returns to ensure that the proper taxes are actually
The system has bone from one based on trust to an adversarial one in which the
taxpayer must prove the government's figures are wrong. In most other conflicts,
a citizen is assumed to be innocent until the government proves guilt.
The IRS claims it needs billions of dollars for new computers to keep track of
all those zillions of W-2 and 1099 reports of income received. However, they will
have trouble justifying new funds until they explain why the last $4 billion computer
purchase is not working.
The current system is more than the taxpayer can bear. A major indication is the
level of uncollectible taxes, which has soared to over $100 billion. A major activity
of my fellow enrolled agents is submitting "offers in compromise" to the
IRS on behalf of taxpayers to try to work out affordable payment agreements in which
a taxpayer pays back taxes over a period of time.
A oppressive tax burden may be contributing to personal bankruptcies, which reached
a record level of over a million people last year. Certainly, the tax system is adding
to the growing anti-government sentiment in our country.
Although members of both political parties agree that the era of big government
is over, the amount of taxes collected annually keeps going up. In 1951, when I started
my professional career after college, my highest federal income tax rate was 6 percent
and my return was two pages long. When our youngest son started his career in 1982
(after college), his highest tax rate was 28 percent and his return was about six
In the instructions for this year's tax return, the IRS admits that it takes over
a full workweek of taxpayer's time to keep the records, learn about the law, prepare
the forms and send them in. The IRS claims that it achieved an accuracy rate of 93
percent in answering tax law questions in 1996 (up from a previous 90 percent). The
law is so complex that the experts can achieve only 93 percent accuracy, but from
every taxpayer they want 100 percent accuracy!
A good system would have one low rate because hard work and success should be
rewarded, not punished. It would be simple because the pain of paying taxes should
not be compounded by complexity. Savings and investment would be encouraged. The
system would be fair and applied equally to all. Evasion would be difficult, and
everyone would pay a fair share.
Several tax systems would meet these goals, including the flat rate tax, a national
sales tax and a value added tax. Let's hope that Congress seriously considers each
of these. It is difficult to imagine anything worse than the current system.
George Marotta is a research fellow at the Hoover Institution at Stanford University,
as well as an enrolled agent (tax expert).
Copyright © 1996. The Light Party.