….The Only Thing More Complex Than the Tax Code Is Figuring Out How to Fix It
By Aaron Task | Daily Ticker
April 18, 2011
Thanks to a quirk in the calendar, Americans had some extra time to file their taxes this year. Due to the complexity of the tax code, every extra minute helps and the real slackers among you have a few hours left to file.
But no matter what the deadline for filing, there’s no getting around the fact the U.S. tax code — 60,000 pages and counting — is incredibly Byzantine and in need of reform. According to the Laffer Center, $431 billion is spent annually complying with the tax code, money spent to produce “nothing other than, well, tax compliance,” Art Laffer writes in The WSJ.
In the same op-ed, Laffer cites a study by the National Taxpayers Union which claims more people are employed by the “tax compliance industry” — including tax attorneys, accountants, financial planners and IRS workers — than by Wal-Mart, UPS, McDonald’s, IBM and Citigroup, combined.
These are staggering figures, albeit unverified.
Still the question remains: How do you simplify the tax code without imposing undo burdens on large swaths of the American people?
One way to “simplify” the tax code is by eliminating all deductions — including for mortgage-interest payments, dependents and charitable donations. The Bowles-Simpson plan found that such deductions cost the U.S. government $1 trillion annually.
But, of course, eliminating deductions for mortgage-interest payments would likely trigger a collapse in the already shaky housing market, with devastating implications for the net worth of millions of Americans.
Similarly, there are pros and cons to other reform-minded proposals such as a flat tax or consumption tax, as Henry and I discuss in the accompanying video.
Finally, this is all complicated by issues of fairness: This weekend, both Treasury Secretary Tim Geithner and former Fed chairman Alan Greenspan suggested the Bush tax cuts for the wealthiest Americans should be allowed to expire after being temporarily extended during the lame duck session last year. But at the same time, 45% of U.S. households pay no federal income taxes, suggesting the burden is unfairly on the wealthiest Americans.
But considering the average income tax rate paid by the wealthiest 400 American families has fallen to 17% from 26% since 1992, it would seem the ever-shrinking U.S. middle- and upper-middle class is doing more of the heavy lifting than ever.
Aaron Task is the host of The Daily Ticker. You can follow him on Twitter at @atask or email him at email@example.com