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  • The Tax Code Is Too Complicated

    U.S. taxpayers will spend $431 billion just complying with the tax code this year, according a new study by Arthur Laffer, Wayne Winegarden, and John Childs. That’s not money collected by the Internal Revenue Service; that figure represents just the value of the time taxpayers will spend keeping records and filling out tax forms, and the cost of paying professional tax preparers to do it for them, plus the cost of the bureaucracy needed to administer the tax code. That $431 billion amounts to 30 percent of the total of income taxes collected.

    Why does it cost so much to comply with tax laws? For starters, the tax code is long. It contains 3.8 million words as of 2010. And the task of figuring it out is all the more impossible because the law is constantly changing. In 2001, the tax code contained “only” 1.4 million words, but since then there have been approximately 4,428 changes to the tax laws. There were 579 changes in 2010 alone. The National Taxpayer Advocate routinely identifies tax law complexity as the number one problem facing taxpayers.

    One tax system that’s easier to comply with would be a flat tax system that features one low rate and many fewer deductions and credits. Why doesn’t Congress adopt such a system? Probably because that would mean abandoning the idea of using the tax code to advance social agendas, and politicians like the idea of trying to change people’s behaviors.

    The Laffer paper is “The Economic Burden Caused by Tax Code Complexity,” published by the Laffer Centerfor Supply-Side Economics. For an overview of the flat tax, see “A Brief Guide to the Flat Tax,” by Daniel J. Mitchell, published by The Heritage Foundation, July 7, 2005.

    Posted in Economics [slideshow_deploy]

    23 Responses to The Tax Code Is Too Complicated

    1. George Colgrove VA says:

      No – really?

    2. George Colgrove VA says:

      1. Enter your income here ___________

      2. Enter the number of adults in your household (max = 2) __________

      3. Rnter the number of children in your house (max = 2) ____________

      4. Sum 2 and 3 _______________

      5. Poverty rate (current = 27,000) / 4 = __$6750______

      6. Multiply 4 and 5 = _______________

      7. Subtract 6 from 1 (Adjusted income) = __________________

      8. If 7 is equal to or less than 0 (zero) and if 1 is greater than $5,000 enter $100 on line 10, otherwise enter zero.

      9. Tax rate = ___________________

      10. Tax Due (maximum of $200 or by multiplying 7 and 8) = _______________

      This tax is to be collected by Towns/Cities/Counties (which ever is the lowest level of tax collection agency in a state)

      Towns then pay the state a portion of tax collected based on formulas. The state also collects a sales tax.

      The feds collect a portion of the tax from the state.

      No need for a IRS or state tax collections.

      Eliminate all Property taxes.

      Allow towns to impose minimal fees for certain things.

      GET RID OF ALL TAX INCENTIVES, SHELTERS, ETC.

      END TAXATION OF CORPORATIONS AND BUSINESS INCOMES.

    3. Mark LaReau, Tempe, says:

      Yes, the tax code is too complicated but it is designed to be that way in order to increase violations that result in more cash flow to the government.

      Many of us spend a great deal of effort tauting the benefits of a flat tax when the flat tax has the same innate problem with the graduated tax and that is it is an income tax.

    4. Mark LaReau, Tempe, says:

      As I was saying, the problem with a flat tax is that it is an income tax and there are many problems with an income tax. For starters it is recommended by the Communist Manifesto as a tool with which to communize a state. How does that work? First and foremost an income tax, whether flat or graduated, gives government the authority to violate your right to financial privacy. This can be very useful when deciding who to punish or when sizing up one's opponents with respect to the size and liquidity of their War Chest. Aside from that, it tends to keep the little people in line because most folks don't want to speak out, that is exercise their right to speak and risk the chance of being audited. The nail that sticks out is the one that gets hammered. Sun Tzu said that all war is economic and if so then all struggle has an economic component to it as well be it political or otherwise. The more economic control one has on the masses of people the greater the leverage one has for getting one's way. Besides that it divides people into economic groups and thereby accentuates class warfare and don't we have enough of that already?

      There are many who believe that rights descend from those elected to public office. I am not one of those. If we are to ever get this country back on track, we first need to begin facing realty and among the truths we need to face are: rights do not descend from publicly elected officials, might does not make right, the ends do not justify the means by which they were achieved, an income tax, whether flat or graduated still gives government the authority to invade one's financial privacy and such authority furthers the objectives of the Communist Manifesto.

    5. BMc, AZ says:

      Too straight forward, makes too much sense. Washington will never go for it.

    6. Tommy Taxpayer, Bemi says:

      The current tax code is between 2,500 and 60,000 pages long depending on who you ask. Change to a 17% (or whatever makes sense) flat tax for everybody. One page tax code. Don't follow the direction of the PAC's do what's right. The right path isn't always the easiest path. Run our country like a business not like some sort of political competition.

    7. Patrick M, Ohio says:

      Again, I find no attempts by Heritage to explore the replacement of the entire broken income tax system, which was not complex when it came about as a tool of class envy, with something completely different, specifically the consumption tax known as the FairTax. I await an actual analysis of the idea, as I have yet to see it.

      The fact is that our current tax code, as well as the flat tax, or any income-based tax, is a tax on achievement. And it's a tool that the left often uses to stir up class envy. Taking that away, as well as the power of politicians to use the current code to feed their pet cause, would solve most of the revenue problems, leaving s spend more time to work in the spending mess.

    8. f satnik says:

      Fair tax Does it all ! Explore it.

    9. Larry Coy. Mooresvil says:

      The "Fair Tax" in much simpler, fairer and eliminates the IRS.

    10. Eric, Oahu says:

      As the article points out, the problem isn't ability to change the tax code to something simpler or even whether such a move would be practical. It would be practical. The problem is that politicians, on the right and left, love to use the tax code control behavior and buy votes. Until we figure out how to fix that discussion about the best system to switch to is pointless.

    11. Thom, Dayton, OH says:

      How about this one that requires ZERO figuring: The Fair Tax. Read The Fair Tax Book and see that it is the best (by light years) tax plan there is. Period.

    12. billg atlanta,ga says:

      no doubt the fair tax is the way to go.

    13. Bobbie says:

      can't stand the imposition of having to file!!!!

    14. Paulc says:

      1/2 of Americans do not pay income tax.

      40% of the 1/2 file the income tax form to collect a welfare payment.

      These people love this system.

      40% of those that do owe tax can submit a short form.

      The moaners are the 10% that make 80K and more. Let them eat grass (kidding).

      Everyone has to contribute & being proud to do so.

    15. eric van pamel says:

      Moochers love being moochers, brag about it, and spend their lives figuring out how to mooch more. I personally know folk who get over $2,000 month in free goodies! These are able bodied, young, healthy individuals. They pack the grocery carts full while I buy a few days worth of necessities. When their auto breaks down the state will pay 4 that too! And they have the right to vote for folk who will give them more stuff. What a deal. Sadly they exist in a pathetic state but they believe they are in Utopia. They have no individual thought but are like a part of some 'Borg" collective. Human beings become best when they strive, fail, and learn to overcome. These folk have sold their soul to the likes of Obama, Reed, Sharpton, and the like. They are being pawned, marketed, decieved, manipulated, and they do not know nor care,

    16. George Colgrove VA says:

      Thom, Dayton,

      I am not sure I want the whole brunt of wasteful spending put on a Twinkie. I can see a national sales tax being over burdensome to buying goods. I also think that the poor (I mean really poor) should be free of paying taxes AND not get federal entitlements. It seems rather idiotic to make the poor pay a national sales tax on the goods they need, only to give that money back to them in welfare. We lose so much wealth within the federal workforce intermediaries.

      What I propose does provide states with limited sales tax where they find it is necessary, but the brunt of taxation should still be on incomes. I am a proponent of getting rid of the property tax, as that tax alone is the direct cause of limited growth. If you want to build a deck, you should without a perpetual penalty levied against you. If you want to buy the best car available, you should pay a sales tax, but after that, you are done!

    17. B. Brown, Russell, K says:

      We just attended a FAIR TAX MEETING last night. We think it is the way to GO.

      In fact Kansas and Missouri are competing for this to go into effect. We just lacked one vote from getting it passed, thanks to the Senate President, Steve Morris (RINO)

      People need to get involved with the FAIR TAX, I understand in the Fed. Gov. all our Kansas Representives and Senators are in favor of the Fair Tax , except Senator Roberts, and Congressman Yoder.

      We well keep calling and writing them.

    18. Stirling, Pennsylvan says:

      The government wont make the tax code simple because that would undo the dependency on the government. It's this dependency which allows them to use the tax code for special intrest groups funding. A Fair tax would provide transparency which is pro individual and anti- big government.

    19. Kate in Minnesota says:

      The tax code penalizes young people for getting married. It is lucrative to be single and have children to qualify for the $8000 earned income credit. If the father marries the mother, the credit is most likely lost as combined incomes put the couple over the income limit.

    20. Pingback: Report: Tax Code Mushrooms to 3.8 Million Words, Costs Americans Billions | The Peter Principle

    21. john king, alameda, says:

      Hauser's law derives from his study of tax receipts as a % of GDP. In a narrow range, tax revenues have averaged 19.5% of GDP since WWII. As Mr. Hauser states: "….Raising taxes encourages taxpayers to shift, hide, and underreport income. . . . Higher taxes reduce the incentives to work, produce, invest and save, thereby dampening overall economic activity and job creation.” This is not a political issue but a pure math issue. A flat rate – set in stone – can be a combination of taxes on income and/or consumption and then government incentives have to shift from penalizing success to helping create it. The math looks like this:

      (Tri x I) + (Trc x C)/ GDP = T%, where Tri is the income tax rate; Trc is the sales tax rate; I is Income; C is Consumption or sales & T% is the percentage of GDP. Fix the Tri, Trc & T% rates and it is obvious that if I & C increase then actual tax revenue increases. Since I is increasing, C should also increase as will GDP and the targeted T% and thus actual tax revenues will meet government needs. If all is fixed with little ability for self aggrandizing politicians to politicize it, we won't have to make so many changes in plans, will know how to plan and de-mystify and de-politicize the tax system.

    22. Bobbie says:

      the tax code is complicated, showing a disrespect of burden to the tax payer but even more so to create make-work to hire more government employees.

    23. marvinlzinn says:

      I would simplify this explanation also: ALL federal income tax is WRONG! Our ability to vote for what we want them to do will be much more effective if we volunteer to pay for what we want and nothing else. (Vote for me as president. My first effort will be to cut the government in half – each year. Except for national defense, they have no right to do most other things. And yes, I will also cut my salary in half.

      marvin

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