We can wring our hands about the epidemic of tax evasion and cheating, or we can ask: Does it make sense to collect taxes this way? It isn't just the unfairness. Seventy percent of Americans told the Tax Foundation in 2005 that they either dislike or hate doing their taxes annually. A full 77 percent believes the system needs a complete overhaul. And 54 percent offered that they'd be willing to trade some deductions in order to make the tax system simpler.
The 7 million words of the U.S. tax code are so abstruse, reports the CATO Institute's Stephen Moore, that 70 percent of the members of the two tax-writing committees in the House and Senate pay accountants to prepare their taxes. And the IRS phone counselors often give out incorrect advice.
The compliance cost for the American economy is quite staggering. The Tax Foundation estimates that in 2002, businesses, individuals and non-profits spent over 5.7 billion hours preparing taxes. Scott Moody of the Tax Foundation puts the cost of these man-hours at $194 billion -- more than the revenue of the Wal-Mart Corp. It is also considerably larger than the 2004 budget deficit of $71.3 billion.
A switch to a consumption tax would cut the Gordian knot of the tax code. All of the millions of hours of tax-planning, tax-preparing and tax-loathing would be gone. H&R Block would go out of business. You would not have to worry that while you were paying your full measure of tax, your neighbor was skating by with something less (sometimes a lot less, on the same income).
The whole intrusive monster of the IRS would no longer have the right to know how much we earn, and employers would be freed from the morass of withholding. Savings and investment would no longer be penalized.
Clearly, certain exemptions would have to be arranged for the poor. But April 15 would be a beautiful introduction to spring, instead of the day of doom it now represents.
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