Taxes. They’re as certain as death and an unavoidable part of living in a civilized country. In a nation forged under the slogan, “No taxation without representation,” the federal and state tax code have devolved into a briar patch of complexities and loopholes.
Anyone calling for the abolition of taxes (or claiming the income tax is unconstitutional) is living in a bubble. Taxes are an essential part of society because they pay for the things we need. They can also curtail behavior deemed universally detrimental while raising the money to pay for the negative consequences. Take, for example, taxes on cigarettes. A tax is more effective than an outright ban and the revenue collected can be used to fund healthcare.
A tax is only as good as its compliance rate, however, and the thousands of pages of Internal Revenue Service tax code coupled with the systematic defunding seriously threaten the government’s ability to raise revenue. The tax code to file 2014 returns takes 74,608 pages to explain; it’s too technical. Tax law has been abused by the government to reward special interests with tax breaks and to incentivize social norms with tax deductions. Tax law in the United States has become oppressive and unfair.
The success of the U.S. tax system depends on trusting the IRS to do its job. While some right-leaning individuals will proclaim their patriotism in paying taxes (but only what they are legally responsible to pay, not a cent more), most citizens pay their taxes because it is the law. But if increasing the complexity of the tax code increases the number of loopholes, and defunding the IRS decreases the odds of getting caught, the coffers of the United States are in big trouble.
One solution is a complete overhaul of the tax code. The new tax code should be fair, but not equitable. Some citizens will be expected to pay more, both in percentage and in absolute terms. The tax code should also not attempt to enumerate all possible sources of income, taxable transactions or taxable goods. There’s a two-pronged approach to this. First, tax all income on a sliding scale based on income. Instead of fixing the brackets on dollar amounts, peg them to multipliers of the poverty line that can be adjusted geographically and over time. There are no exemptions and no deductions. Second, incorporate a national sales tax. No exemptions. No special classifications. Opponents usually attack a sales tax as regressive since higher-income citizens devote more of their income to savings. We can address that income disparity with forms of public assistance, such as Section 8 housing, health insurance and food stamps. Likewise, we can try other economic solutions to drive up wages. Essentially, a certain dollar amount of the sales tax would be refunded via state programs throughout the year.
With a clear tax code that can be explained in a few pages rather than thousands, more Americans will understand why their tax bill is what it is. All revenue will be collected throughout the year without a large surge in mid-April. By eliminating tax loopholes, the system will be fair and transparent. The only loophole in this system would be hiding income or paying for goods and services off the books. Unfortunately, in a country that values personal liberty and freedom, there’s no law that can be passed to combat that type of behavior.
It’s likely that a simpler system will encourage more people to pay their taxes. As you wait for your tax refund to come, contemplate if perhaps there is a better way.