With the paperwork filing
And everyone telling you, "Nothing is clear!"
It's the most terrible time of the year,
It's the droop - droopiest season of all.
With those tax experts fuming and depressing meetings
When the IRS calls
It's the droop - droopiest season of all.
So I decided to try to write a parody of a song because although I don't have the talent for music, I thought the income tax deserved this type of treatment.
Yes, tomorrow is tax day. Hopefully, you are well aware of this fact and have already filed your taxes. If not, good luck to you! The tax system is overly complex as you know, and this might create difficulty when you file your taxes.
Indeed, the tax system is greatly complex and complicated. The tax code has over 70,000 pages, there are 1.2 million paid tax preparers in the United States, and the tax system is modified at a fast pace, in recent history, the tax system has been changed at an average of two times a day.
It's no wonder that it is a pain to file taxes. In 2000, taxpayers spent 3.2 billion hours preparing taxes for the federal government.
But the cost with dealing with our complex income tax system goes beyond some simple inconvenience. It also costs the United States taxpayers and the economy as the whole money. In 2006, taxpayers spent 265 billion dollars, not on paying their taxes specifically, but just to see how much they would have to pay.
And of course, the complexity is a hassle that businesses would rather avoid entirely. In fact, Richard T. Page explained in The Tulane Journal of International & Comparative Law in 2009,
"The former chairman of the Council of Economic Advisors has suggested that "from an income tax perspective, the United States has become one of the least attractive industrial countries in which to locate the headquarters of a multinational corporation." ... Perhaps this helps explain why the United States went from hosting eighteen of the world's twenty largest companies' headquarters in 1962 to just eight in 2008.”
But besides the impact that the complexity of our progressive income tax can have on the economy, I fear a much larger impact.
The fact is that not complying with the federal code is a crime and is punishable with fines and incarceration. Think of Al Capone. He was put in prison not for any of the crimes he committed, but because he was guilty of tax evasion.
Now I admit that if you do try to pay taxes, you likely won't be incarcerated for any mistakes that you might make. But let's not be naive. The tax code allows the opportunity for the government to reinterpret what the code means in order to punish or silence any of their critics should they deem it necessary. The power of the government should not be that strong.
Nor on a less conspiracy theory route, should the United States citizens have to fear breaking the law when they are doing their best to comply. They could very well err. Indeed, University of Law School Professor Deborah Shenk claims that almost all of taxpayers will make a mistake when filing taxes.
You could be guilty right now. Is this really a good tax system? Writing this section of this post was extremely difficult as no one understands the tax system even enough to explain how complex it is.
But complexity of our tax system is only one part of the problem with our income tax. The root cause of this problem can have a lot to do with the objectives of progressive redistribution of wealth prevalent within the system.
Economist Friedrich A. Hayek explains the history of the progressive income tax,
"As is true of many similar measures, progressive taxation has assumed its present importance as a result of having been smuggled in under false pretenses. When at the time of the French Revolution and again during the socialist agitation preceding the revolutions of 1848 it was frankly advocated as a means of redistributing incomes, it was decisively rejected...When, in the 1830's they came to be more widely advocated, J. R. McCulloch expressed the chief objection in the often quoted statement: "The moment you abandon the cardinal principle of exacting from all individuals the same proportion of their income or of their property, you are at sea without rudder or compass, and there is no amount of injustice and folly you may not commit." In 1848 Karl Marx and Friedrich Engels frankly proposed "a heavy progressive or graduated income tax" as one of the measures by which, after the first stage of the revolution, "the proletariat will use its political supremacy to wrest, by degrees, all capital from the bourgeois, to centralize all instruments of production in the hands of the state." ... But the general attitude was still well summed up in A. Thiers's statement that "proportionality is a principle, but progression is simply hateful arbitrariness,"' or John Stuart Mill's description of progression as "a mild form of robbery."
Here we have it. The big problem with our tax system today is that it is based on the same principles of redistribution of wealth that we have often seen to be problematic. It is built upon the socialist ideas.
Perhaps the worst part of the whole thing is that it doesn't even work in its proper way. Due to the complexity of the tax code and the loopholes in the system, the system does not take from the rich and give to the poor as it intends, but rather takes from the poor and gives to the rich. As Beverly Moran, Professor of Law at Vanderbilt University, explained in 2010,
"On paper, progressive rates can appear dramatic. At times, the highest marginal rate has risen to 90% of taxable income. Working solely from the statute as written, progressive rates seem ideal for downward wealth redistribution; but the dramatic appearance of rates on paper are just part of the story. Progressive rates are applied to ordinary income, including income from wages, but a lower rate applies to income from the sale of capital assets, such as stocks, bonds, and real estate. Progressive rates are more public than real because as income and wealth rises, sources of taxable income shift from wages to capital gains....The result is that, as income rises, tax rates actually fall.”
Yes indeed, such brilliance is our tax system! It has complexity and works towards redistribution, in the way opposite of intended. But it's not just a problem with the way the system is allocated now. As Chris Edwards of the Cato Institute explains,
"The income tax is not an example of a good idea gone bad. It was bad from the beginning, and it just keeps getting worse. The income tax distorts financial planning and business investment, and it encourages tax avoidance and evasion. Because the income tax is built on an unworkable base of “income,” the law is continually changing. Let’s simplify Americans’ finances and disband the tax army by pursuing fundamental tax reform."