Tax Mistakes Prove Code Needs Radical Makeover

Houston Chronicle Article by Ken Hoagland

If we take the former Health and Human Services nominee, the secretary of the Treasury and the chairman of the House Ways and Means Committee at face value, federal taxes owed but not paid by each are really an indictment of the income tax system itself.

Given the complexity of the tax code, their explanations are not entirely without the ring of truth.

But when the chairman of the congressional committee that writes federal tax laws, the man responsible for running the IRS as the secretary of the Treasury and the nominee to head the agency responsible for Social Security and Medicare say they failed to pay owed taxes because they misunderstood our tax laws, where does that leave the rest of us?

House Ways and Means Chairman Charles Rangel, Treasury Secretary Timothy Geithner and former Sen. Tom Daschle have officially joined the ranks of millions of Americans who are befuddled at the almost indecipherable 67,500 pages of tax rules that accompany the U.S. income tax system.

The tax code is so complex that Americans will pay an astounding $300 billion this year in tax preparation costs alone. The amount we spend just to obey — or game — our tax laws is about $150 billion more than the entire cost of the taxpayer stimulus checks mailed out last year.

Our tax system has become an expensive and confusing collection of thousands of political favors, ambiguous rules that invite all manner of tax avoidance strategies and ham-handed congressional attempts to manipulate citizen behavior.

Under the income tax code, debt is more favorable than wealth, married people pay more than singles and business decisions are commonly made on the basis of tax consequences instead of sound practices and growth.

The alternative minimum tax, once designed to squeeze taxes from a few hundred very wealthy people who figured out how to legally underpay millions of dollars, now threatens to add more than $2,000 a year to the tax bills of 20 million middle-class Americans because of an error in the way the law was originally written and because the government now counts on that revenue.

Even the IRS cannot guarantee that the advice it gives confused taxpayers is sound.

Worse, the income tax system gives foreign producers a price advantage over domestic producers in U.S. markets, the payroll tax that tripped up Secretary Geithner is highly regressive and most of what we pay the government either in taxes “embedded” in the price of goods and services or withheld from paychecks is hidden from plain sight.

Supporters of the FairTax believe there is a better way. The FairTax proposal is a comprehensive plan to replace federal income and other taxes with a progressive national retail sales tax, with a rebate to ensure that no American pays such federal taxes up to the poverty level.

Based on $22 million of peer-reviewed research, FairTax supporters believe that eliminating income tax withholding and payroll taxes could allow millions of distressed homeowners the ability to satisfy mortgage obligations.

They like the idea of the universal monthly “prebate,” which would entirely reimburse taxes paid by the poor and help the middle class make ends meet.

The potential to restart investment by eliminating both the corporate tax and capital gains taxes is compelling.

And a simple, transparent tax that is paid without exception by every consumer, including the poorest workers on one end of the spectrum and billionaires on the other, is far fairer than a system that invites manipulation by “insiders” who can afford a tax lawyer, tax lobbyists or a special relationship with a member of Congress.

Our convoluted and expensive federal tax system invites both deliberate cheating and innocent mistakes and has now snagged three top national leaders.

Worse, no economic recovery effort can be fully effective as long as we continue to tax what goes into the economy instead of what comes out of the economy.

As the nation’s economy teeters, it is past time for this public policy to change to actually favor the public and our nation’s economic health.

Hoagland is the national communications director of Houston-based Fairtax.org.

 

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