The US tax code, at 67,000 pages, is an embarassing swamp of esoteric gobbledygook, unworthy of a nation which is supposed to be the shining light of capitalism, entrepreneurship, and productivity.
Deroy Murdock has a detailed article on how inefficient the mere transaction of collecting tax monies from individuals is :
“The IRS estimates they (small business owners) have to spend over 80 hours slaving at their computers to do their taxes, enough to rob them of the equivalent of a two-week paid vacation.”
I don't need to remind any US residents on how time-consuming and/or costly their own tax preparation has been, but suffice it to say that if fees, time, processing resources at the IRS, and postal services are added up, the total burden adds up to $400 to $600 billion a year in transactional wastage for the US economy. This is as large as the total economy of a country like Switzerland or Belgium.
Just about the best thing that Washington could do to further stimulate the already robust US economy is simplify the process through which taxes are collected. Again, this is not a tax cut, but merely a reduction in the transaction costs of extracting the same amount of revenue from taxpayers. Yet, the resultant productivity gain would increase GDP by 2-3% almost immediately.
I am baffled why not just the Federal Government, but even many State Governments are unwilling to collect the same revenue through a simpler process. I hear rationalizations about how "tax accountants don't want to go out of business", but that excuse makes about as much sense as tearing up roads and relaying them repeatedly in order to employ workers. And since when has there been a 'tax accountants lobby' powerful enough to obstruct the wishes of just about every other taxpaying citizen and business in America?
The even bigger irony is that simple tax codes have been adopted in former communist regimes like Russia and Ukraine. Tax evasion has predictably plummeted, even as revenues have surged. Why is America unable to enact a capitalist principle that former Soviet states have implemented?
On the political side, while neither party has indicated any intention of simplifying the tax code, Michael Mandel at BusinessWeek has created some revealing charts on tax rates by income bracket, both before and after various tax cuts. Between 1981 and 2004, the lower the income quintile, the greater the magnitude of tax rate reduction has been due to tax cuts by Presidents Ronald Reagan and George W. Bush. If anything, the highest quintile is the only tier that has seen virtually no tax rate relief.
Also note the line chart showing the tax rate drop for the middle quintile after 2001. This utterly destroys the fashionable socialist statement that Bush's tax cuts were "for the rich" - a line often spewed by someone who is incapable of detailing precisely which tax bracket was lowered by how much. Of course, you may not have this chart handy the next time you encounter someone who opposes tax cuts for reasons they can scarcely explain. Thus, as usual, such a debate is won by forcing them to demonstrate knowledge of the subject behind their own question, through a question of your own.
If they say :
"....tax cut for the rich"
you can reply with :
"Please explain which tax bracket dropped by how much through Bush's tax cut. I need to see that you know how much the lower brackets dropped by."
"Why do you oppose Bush's tax cuts, but not Clinton's 1997 tax cuts? Clinton cut taxes on capital gains, which certainly is good for the economy, but is far more skewed towards the rich than income is. Why don't you describe Clinton's tax cuts in more detail for me?"
At any rate, these debates are easy to win. But I will not excuse President Bush or Congress from refusing to address tax simplification, and letting the horrendous statistic of 19 to 23 cents being wasted in the process of collecting each revenue dollar continue.
Hope is on the horizon, however. Globalization is introducing market forces that are putting downward pressure on tax rates and tax complexity worldwide. Ireland has outperformed the rest of Western Europe by a wide margin in the last 12 years due to vastly lower taxes, which in turn attracts workers and businesses away from higher-tax welfare states. If the US sees an exodus of business incorporations that are instead flocking to Ireland or Bermuda, perhaps Washington will finally act.