Too much for even a genius
The hardest thing in the world to understand is the income tax. That's not us talking, that was said by Albert Einstein, the father of the nuclear age and a genius among geniuses. For years and years, talk in Des Moines and Washington has involved tax simplification, but frankly, the politicians are as lost as Einstein and the rest of us.
If Einstein thought income tax was complex in his day, he would be stunned to know that federal tax code today is a 101,295 page document last time we counted, and growing on an almost daily basis. There are 480 different tax forms at the federal level alone, and another 280 forms that are needed to figure out how to use the first 480 forms. Got all that?
At last count, there were five different individual tax rates, eight different business rates, and several hundred potential deductions, credits, adjustments, exclusions and exemptions, many of which are a complete mystery.
The IRS figured it takes nine hours and 54 minutes for the average citizen just to fill out his or her federal 1040 in 2000.
Some 60 percent of taxpayers have thrown up their hands and hired a professional to do their taxes. Money magazine runs a study asking several dozen tax professionals to do a return for a hypothetical family, and in recent years, not one of them calculated the completely correct figure.
Another study shows that even the IRS can't figure out the monster we have created. Several million wrong answers are apparently given to confused callers in any given year.
Even if someone did spend the entire year reading the tax codes, it wouldn't mean they were getting a fair shot. If you penciled out your taxes as a married couple filing jointly on Iowa income tax vs. the same two people filing separately last year, chances are you found that the "marriage penalty" was alive and well.
As the Congressional political races heat up this year, you will undoubtedly hear the term "flat tax" vollied around. We have in every campaign since at least the 1980s. And nothing will come of it.
In theory at least it's possible to have taxes everyone can do on a postcard in 15 minutes; without the cheating and slip-up possibilities of a host of deductions and itemization forms, we also might not have to pay the salaries of all those 100,000 or so IRS employees. What's to audit?
A flat tax would grow the economy 5.7 percent within five years, or $522 billion in higher economic output and $3,000 worth of additional income for a typical family of four, or so estimates Alan Auerbach, a respected economics professor and former chief economist for the Joint Committee on Taxation. We don't know about that, but it does stand to reason that we might not need so many deductions if more money was left in our pockets in the first place. More discretionary income left over means more investing, more business starts and expansions, more retail sales, more time between recessions perhaps. Working well into May each year just to cover your taxes is a tad extreme.
We've known all this for years. Surveys have shown public opinions on the subject. So why won't a flat tax happen? Because we have a mindset that people of lower-middle income must be given lower rates than everyone else, that people of upper incomes must be assessed a taxation penalty in the form of higher tax rates, and that everyone must be tossed some kind of bone in the form of some deduction or other for having more kids than they can afford, more business expenses than the business return can justify, and so on.
And perhaps the government really, really likes using the extra money many families loan them all year long interest-free in the form of payroll deductions, until the treasury finally turns back that "refund" months later. People are so happy to get a check, they forget they are just getting back a little of their own money that the government had no right to play with in the first place.
To make a real flat tax work, everyone above a certain agreed-upon minimum income level would have to pay the same rate, say 17 percent. This would be reduced only by the number of dependents, seniors or disabled persons in the household.
Seems fair enough - if family A makes five times the income of family B, they would pay exactly five times as much. This seems more straight-forward than having progressive tax rates for appearances' sake and a host of creative deductions to buy the taxes of the wealthy back down behind the scenes.
The comfortable should not escape taxes, but we also don't see why people should be penalized for success or for savings, either.
Ask your Congressional representative if he did his own taxes this year. And if the people who pass all 101,000 pages of tax codes can't figure out what they have done, perhaps it is time to simplify to a level that at least an Einstein could fathom.