Do you trust your neighbor to pay taxes?

Posted: Apr 15, 2005 12:00 AM

"The difference between death and taxes is death doesn't get worse every time Congress meets." -- Will Rogers

 A 2003 survey by asked Americans whether they ever cheated on their taxes. Eighty-seven percent said, rather huffily, certainly not! But 13 percent said (I paraphrase), whadya mean cheat?

 Well, now, 13 percent who admit to cheating is pretty high, don't you agree? That's 13 percent honest cheaters. How many people do you suppose are cheating and lying about cheating? Hmmm.

 Another question in the survey may shed light on this. "What percentage of people do you think have ever 'fudged' the truth, even a little bit, on their taxes -- by doing things such as overstating how much money they donated to charity?" Answer: 49 percent.

 One hates to be a cynic, but contemplating other areas of American life, one is hardly overcome with a sense of national rectitude. Professional baseball players, doctors, coaches and owners have conspired to cheat with steroids. Corporate executives are cluttering the courts with creative schemes to defraud investors, clients and customers. Students are cheating on exams (sometimes with the aid of their teachers who are attempting to beat state-mandated tests). Journalists invent sources. Employees loot their employers to the tune of $50 billion per year. Shoppers make off with about $13 billion worth of products through shoplifting every year. No one obeys speed limits.

 Are we then to believe that only a small minority of taxpayers, offered the opportunity to cheat such an impersonal entity as the U.S. Treasury, are declining to do so? The Internal Revenue Service reports a gap of almost $300 billion between what taxpayers should pay and what they do pay.

 Clearly, some taxpayers have more scope for dishonesty than others. Salaried employees can lie about their charitable contributions and other deductions, but it's difficult for them to hide income. The self-employed, by contrast, and small businesses have ample opportunities to fudge. As the inimitable Will Rogers put it, "The income tax has made more liars out of the American people than the game of golf has."

 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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