As kitchen tables nearly buckle beneath receipts, pay stubs, and calculators, Americans must be grateful that tax returns are due only annually. Today’s deadline reacquaints us with our humungous tax-filing burden. It also suggests a voluntary flat tax as the exit from this morass.
The U.S. Tax Code should join the Panama Canal and the Channel Tunnel as a wonder of the modern world. Though something only an accountant’s mother could love, it is truly stunning — grotesquely so.
At 67,204 pages, the Tax Code and its accompanying regulations and IRS rulings stretch just longer than 71 Gideon Bibles stacked side by side. Even a devout atheist would prefer to read the Old Testament — 71 times. The Tax Foundation counts 1,638 different forms on the IRS’s webpage. Among the more novel: “Casualties and Thefts” (Form 4684); “Suspicious Activity Report — Casinos and Card Clubs” (Form 403); and “Tax for Children Under Age 18 with Investment Income of More Than $1,700” (Form 8615).
Form 1040, of course, is the IRS’s greatest hit. A typical taxpayer needs 37.8 hours to finish this basic tax return.
“Pity the self-employed,” David Keating of the National Taxpayers Union wrote last year. “The IRS estimates they have to spend over 80 hours slaving at their computers to do their taxes, enough to rob them of the equivalent of a two-week paid vacation.”
Among 28 federal agencies the Office of Management and Budget studied in its Information Collection Budget of the United States Government, completing IRS paperwork in 2006 took 6.65 billion hours, fully 3.5 times the 1.89 billion hours needed to fill forms for the Treasury (sans the IRS), the other 14 Cabinet departments, and 13 major independent agencies combined — including the red-tape-spewing EPA, FCC, and SEC. The Tax Foundation calculated that IRS paperwork-compliance cost Americans $265.1 billion in 2005. This was essentially a 22 percent surcharge atop each tax dollar confiscated.
Even worse, nobody knows what all this means. USA Today recently picked four tax professionals to create returns for the imaginary Bailey family. They generated four different amounts for taxes owed. In 1998, Money magazine asked 46 tax pros to file for another hypothetical household. These experts gave Money 46 different tax-liability figures, varying from $34,240 to $68,912.
As NTU’s Keating concluded: “The Tax Code is so convoluted that no one inside or outside the IRS understands it.”
There is a better way.
Americans deserve a voluntary flat tax. Those who love this gargantuan Tax Code, its multiple rates, and baroque intricacies, should be free to keep filing form after form, if that makes them happy. Meanwhile, those who prefer a flat rate with few if any deductions should be free to choose a postcard that would ask one’s name, address, and income, and a simple calculation for, say, 17 percent thereof.
Politically, a voluntary flat tax would let issue-starved Republicans and conservatives avoid a wrestling match with Democrats and liberals over keeping or scrapping the charitable or home-mortgage deductions. Instead, the Right can argue for giving Americans the freedom to select between two available systems. The sales slogan is simple: “It’s your tax. It’s your choice.” Let the Left argue against granting Americans that option. The Right can win that fight.
Next year, Utahans will choose between either a traditional, six-bracket tax (from 2.3 to 6.98 percent) with exemptions and write-offs, or a simple 5.35 percent flat tax without deductions. The Beehive State will join flat-taxing Estonia, Slovakia, and Ukraine, all of which have seen their economies energized by a single tax rate on income. Even Russia has jettisoned its three-bracket system and its 30 percent top rate on incomes above $5,000. Instead, it has embraced a 13 percent flat-rate tax.
“Before the flat tax, most salaries were paid as cash under the table. That almost has disappeared,” said Yuri Mamchur, director of the Real Russia Project at Seattle’s Discovery Institute. “It’s easier to pay 13 percent than to avoid it.” The former Muscovite added: “The flat tax contributed to economic growth, but more importantly, it sped Russia’s return to the rule of law.”
Hoover Institution economist Alvin Rabushka concurs. “The low flat rate contributed to the decline in capital flight [and] improved taxpayer compliance [in Russia],” he said. In fact, tax evasion in Russia has gone the way of the Gulag. Since the Kremlin adopted the flat tax on January 1, 2001, revenues have swelled 128 percent after inflation.
If the flat tax is good enough for the former Evil Empire, it’s good enough for America’s embattled taxpayers.
– New York commentator Deroy Murdock is a columnist with the Scripps Howard News Service and a media fellow with the Hoover Institution on War, Revolution, and Peace at Stanford University. Researcher Marco DeSena contributed to this piece.