A Tax System That Plain Doesn't Work

Bill Murchison

6/4/2013 12:01:00 AM - Bill Murchison

We have a progressive income tax system in this country because ... because ...

Well, why do we? The system raises, but also loses, lots of money. Nobody understands the tax code. And the code, insofar as anybody does understand it, affords unlimited latitude for abuse of the citizenry, or, rather, selected portions of the citizenry, on whom the Internal Revenue Service can lean virtually without supervision. Ask practically any 501(c)(4) official of the conservative persuasion, especially one whose organization professes kissing cousinship with the tea party.

So why do we have an income tax system in this country? For two reasons, essentially.

--The system, 100 years old this year, rests upon the shaky premise that particular people with too much money should have some of it taken from them and spread around.

The Progressive reformers of the early 20th century saw the practice of taxing income as a means of Doing Good through government edict. Not, probably, that anyone saw something inherently wrong with asking the rich to do -- as Barack phrases it "a little bit more." The rich were involved in giveback as it was, through jobs, investments and philanthropy. That wasn't the point, to be sure. Wresting money from the rich was the point of the progressive income tax system. And continued to be -- right up to the present moment.

--The feel-good factor of an income tax system should never be underrated and never has been from Robin Hood, and probably before him, down to the present day. What we want is for powerful minds, armed with the power of government, to decide how much money particular individuals should be allowed to keep and how much they should give away. Call it compulsory philanthropy.

--We also have an income tax system because, however poorly it works, we can't figure out how to modify it, far less get rid of the thing. The IRS code is honeycombed with provisions crafted to encourage or discourage this, that or the other.

--The matter doesn't' stop there. Inasmuch as nobody understands the tax code as a whole, a whole industry has emerged, featuring lawyers, accountants and lobbyists, to make possible the sidestepping of obnoxious provisions. The government says if you do A, you get taxed; very well, do B instead. For instance, as Apple acknowledges doing, set up a complicated overseas arrangement allowing you avoid -- legally -- the paying of taxes on profits earned overseas.

Most Republicans and even many Democrats would like to overhaul the system in the interest of fairness and efficiency, but that's in fact quite hard, because when you move one piece of the puzzle, another piece, or 15 or 16 other pieces, maybe 200, are affected and require rearranging. The appetite of the U. S. Congress, and of the lobbying industry, for this kind of activity cannot be considered strong. Some adjustments, yes -- we might try a few. But outright overhaul? I think we can believe that when we see it.

Thus the unfairnesses and outrages -- e.g., singling out and stonewalling conservative 501(c)4's when they apply for tax-exempt status -- will go on for a long, long time. Better, more logical and less wasteful modes of taxation, such as the flat-tax -- won't get considered, separately or in combination with other devices for the extraction of money from the customers.

Here we go again: the supposedly simple, putatively constructive measures of generations past - progressive income tax, Social Security, Medicare -- turned not to be so simple or constructive as imagined. That was because they had less to do with efficiency than with Social Uplift -- the movement, by government, of whole populations to plateaus of bliss that only politicians and bureaucrats could see as sustainable in original form.

It all looked good for a while, until the politicians and bureaucrats got carried away with their work: expanding, expending, complexifying just because they could and because there were rich political rewards in doing so.

Thoreau had it right. "That government is best which governs least."