For most Americans, April marks the time when they have their most direct interaction with their government — and it is an experience most of us dread. April is tax time, and each April Americans are confronted with the complicated, stressful mess that Washington calls the Internal Revenue Code.
Our tax code is so complex that almost everybody needs help to comply with the laws, regulations and rules. The IRS estimates that 89% of Americans hire someone else to prepare their taxes or use computer software to assist them. It is no wonder. The tax code fills 25 volumes, and consists of 3.8 million words (as a point of reference, the Bible contains fewer than 775,000 words).
Complexity is costly. According to a 2010 report from the National Taxpayer Advocate — an independent ombudsman for the IRS — taxpayers and businesses spend about 6.1 billion hours a year complying with the filing requirements for their taxes at a cost of $163 billion. That is in addition to what we actually pay in taxes. One could say that families and businesses must spend so much money (and time) on tax preparation that the complicated tax code itself acts as an extra tax on us and the flow of our economy. This is a waste of productive time and money.
Something is terribly wrong with a tax code that is too complicated and burdensome for most citizens to comfortably navigate on their own — and not because they are not smart enough. When Money Magazine asked 45 tax experts to fill out a hypothetical family’s taxes, every one of them came up with a different bottom line — 45 different tax calculations, ranging from $36,322 to $94,438!
There have been efforts to simplify the tax code in the past, including proposals to switch to a flat tax that eliminates the maze of deductions, exemptions, and special rules in exchange for a lower tax rate. The format is so simple that the entire federal tax return can be reduced to a single postcard. The end result is that overall tax liability can be the same — or even reduced. Either way, individuals and businesses save by not having to collect all their information and pay for tax preparation services or software.
One would think such a common-sense approach to taxation would be simple to enact into law — but not in Washington. Like so many good ideas that make it past the Beltway, the flat tax meets stiff opposition from those battling to preserve their particular tax breaks. Now many of these tax breaks are good when considered individually — many of them are intended to help people and businesses — but combined they have turned into a confusing labyrinth.
The good news is that there may be a way around the Washington gridlock. The Freedom to Choose Flat Tax — as it has been called by many over the years, including Stephen Moore of the Wall Street Journal — bypasses the debate on eliminating special tax breaks and instead lets we the American people decide for ourselves how to pay our taxes.
Under the Freedom to Choose Flat Tax, anyone who wants to pay a simple flat tax using a postcard can choose to do so. If certain taxpayers prefer to stick with the current tax code, they can hire an accountant or use a software program and fill out the long form and schedules, taking advantage of all the deductions and exemptions — but they will be subject to higher overall tax rates. It is their choice.
Providing an option is the fairest approach, because many people have made good-faith financial decisions based on the existing tax code — such as the mortgage-interest deduction for their home. They should not be penalized for those decisions. Still, the simplicity of the Flat Tax “postcard” is an attractive alternative that will be appealing to many Americans.
If America is to attract new investment, spur entrepreneurs, start new businesses, and get the economy growing again, America needs to simplify its tax code. This is not only good economics, but also good for democracy. American taxpayers — the people who own and pay for our country — should be able to understand how much they are contributing to government. Though a flat tax will not fix all that is wrong in Washington, it will lift a stressful burden off of everyday Virginians and Americans. This will enable them to pay attention to productive work, operate their businesses, and spend more time with their families without all sorts of bookkeeping, adding up receipts and paying for someone to decipher the frustratingly complex tax laws.
George Allen is a candidate for the U.S. Senate in Virginia, where he was formerly governor and U.S. senator.