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Newspaper Article

    On Tax Day, $125 Billion in Waste

    BY Matt Schumsky
    04/14/2006
    by Matt Schumsky on 4/14/06.

    Another dreaded April 15th – Tax Day – is nearly upon us. Our annual tax ritual requires over 26 hours from the average person filing a standard 1040, and over 60 percent of Americans seek professional help. The reason: The U.S. tax code now exceeds 60,000 pages, and those pages often give conflicting advice.

    No wonder that in 1976, presidental candidate Jimmy Carter declared, “Our income tax system is a disgrace to the human race.”

    In many ways, things are worse today than they were then. Our tax code is truly irrational, and Tax Day has become an embarrassing national symbol of waste and abuse.

    Every year, Congress adds, extends and changes the deductions, credits and other special preferences in our tax law. Because of these loopholes, compliance is a nightmare and the overall complexity is mind-numbing. Worse, the final result is often unfair: Taxpayers with similar incomes can game the system and pay vastly different amounts in taxes.

    In fact, the U.S. Department of the Treasury now estimates the total cost of complying with the income tax at $125 billion a year. Other estimates are as high as $194 billion a year. Either way, that is a staggering and complete waste of resources.

    By way of comparison, the entire U.S. automobile and auto parts manufacturing industry added $120 billion to the economy in 2004, according to the National Association of Manufacturers. Or to look at it another way, the 6.6 billion hours we will spend as a nation completing our taxes this year is more time than it will take to build every car, truck and van produced in the United States. Once a land symbolized by the open road and pioneering muscle cars, America is fast becoming the nation of the tax form and the dulled accounting pencil.

    The cost of the tax code essentially amounts to $125 billion in investment capital we do not have for the U.S. economy, or for our education system (or for any other purpose you can think of). Unless Congress acts, over the next eight years, tax complexity will waste around $1 trillion.

    To look at it another way, $125 billion is more personal income than a lot of states create in an entire year. It is slightly less than the total gross regional product of San Diego County. The tax code's loss to our economy is so immense it is as though the federal government has assigned everyone living in South Carolina or Oregon to do nothing more than read and complete tax forms for the entire year. Thanks, Congress.

    Internal Revenue Service audits are up 21 percent over the past year, which only compounds the nation's misery on Tax Day 2006. After all, even the IRS does not understand the code it has been forced to administer. The blame lies with Congress, and the complicated mess our elected officials have foisted on the American people.

    The current tax code causes tax season headaches and reduces our overall standard of living. It also is the leading driver of political corruption in Washington, D.C. Since 1998, 483 companies have lobbied the IRS alone, hiring 2,884 tax lobbyists, including 277 former federal employees. While thousands of lobbyists in Washington are prospering under the current complicated tax code, the typical taxpayer clearly is not.

    It is clearly time for reform. In a report to Congress earlier this year, Nina Olson, the national taxpayer advocate, called for “a sanity check” of regular reviews of the tax code. That would be a good start, but what we really need to do is completely scrap the code and start over with a design that makes sense.

    Indeed, a positive way to look at the current mess is to see that tax reform is a huge opportunity to boost economic growth in this country. Instead of creating new government handouts to help struggling American businesses, Congress needs simply to free our economy from the wasteful cost of the tax code. The goal should be a tax code that is simple, fair, honest and flat. Average Americans should be able to complete their taxes without professional help, using just a single form.

    On Tax Day 2006, as America's workers try to pay their taxes, we should also demand that Congress scrap the code and pass fundamental tax reform.

    Schumsky is field coordinator for FreedomWorks, an nationwide organization that supports lower taxes, less government and economic independence.