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Devin Bates Ms. Lima GE217 (Wed) 6/1/11 Why America Needs Tax Reform Taxes have been a volatile issue since the time of Hammurabi, but as time goes on, the problems seem to get bigger and more pronounced. In order to function, a government needs money. Since governments cannot create their own funding, they rely on the people that they serve to fund them. While that seems like a fair and straightforward arrangement, it seldom actually works that way. People want all the benefits of a well funded, effective government, but they are seldom happy to contribute to that funding. The problem becomes even worse when you factor in peoples economic situations. Throughout history, people have been trying to avoid paying taxes. Wealthy people have had an easier time doing that as they are usually the people who are part of and control the government. Because of that, the tax burden tends to fall on people with less money and influence. From ancient Egypt to the Byzantine Empire, peasants were forced to pay heavy taxes, and medieval serfs paid the lions share in their day. The American colonists would have had people believe that they paid all the taxes that the British Empire collected, and they even started a rebellion to avoid paying them. The current tax system in America is flawed. It is complicated, burdensome, unfair, and inefficient. Most people have a very hard time filing the tax return that the government requires them to do every year. Then the government pays thousands of

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people a lot of money to double check the tax payers. Some people pay through the nose, while others pay little or nothing. Some people even receive money that they didnt pay from the government when they file their tax return. And in the end, the government is left with too little money to adequately meet all the needs of its citizens, you know, the ones who just paid all that money. The first problem with the current tax system in America is how difficult it is to pay the taxes that the government requires. With the exception of the EZ form, filing a tax return is a major undertaking. It is so complicated that people earn bachelors and even masters degrees that specialize in taxes. Every year, all across America people scramble to finish complicated tax returns before the dreaded deadline. Many people spend as much time trying to file for an extension as they do actually filing their taxes. Even with the help of professional tax preparers and tax software, it can still be a major headache for many taxpayers. So why not simply file the EZ form? Because the only people for whom that form is realistically an option are people who are going to pay little or even nothing in taxes. They simply file the return and they get a nice, big paycheck in a few weeks. Unfortunately, for the people who do have to pay taxes, filing an EZ form would end up costing them because they wouldnt get as many deductions. Most people do everything that they can to minimize how much they owe the government, which means navigating through the mire of tax paperwork every year. Then they have to worry about being audited. That fear of being audited is not only a symptom of the tax systems difficulty; it is also a major part of the second problem with the system. It is entirely too burdensome.

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After John Q. Taxpayer spends countless hours trying to gather all the information he needs to file a tax return, he then spends his hard earned money buying computer software or seeking advice from a tax professional. One would think with all the preparation that goes in to a tax return that it should be a fairly simply process of actually filing itbut one would be wrong. The government agency responsible for collecting taxes, as everyone knows, is the Internal Revenue Service. Many people would argue that a government agency, by definition, is cumbersome and inefficient. The IRS is the exception that proves the rule. It is very good at its job, and it seems to take a sick satisfaction in nit-picking every taxpayer that it happens to catch in its crosshairs. What makes the current systems means of collecting taxes so burdensome is its cost. The IRS has about 100,000 employees. (Workforce of Tomorrow Task Force Final Report) If the average salary of all IRS employees is $50k a year, thats $5 billion dollars that the government spends every year on employing people to collect taxes. That doesnt take in to account all the expenses that go along with it. Imagine how much money the IRS spends just to collect money. So, why does the government spend all that money just to collect taxes? Because it has to. As complicated as it may be to fill out a tax return, it is even worse to actually process that return. There are so many twists and turns in tax laws, so many exceptions and loopholes, checks and balances that the government is forced to hire, and pay, thousands of skilled, intelligent people just to process the forms that it requires taxpayers to fill out. It gives an entirely new meaning to, you have to spend money to make money.

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Another problem with the current tax system is how unfair it is. If you were to look at tax laws and how taxes are actually structured, you would see that the middle class carries the largest burden. If you fall below an arbitrary poverty line that the government has set, you hardly pay any taxes. And if taxes are taken out of your check every week, you will probably get the money back when you file your tax return. If you are lucky enough to make more than 250,000 a year there are tax breaks that you may be able to take advantage of that will allow you to pay little or nothing as well. While they may seem like a good thing to those who benefit from them, tax breaks, credits, deductions, and exemptions are what make the current tax system unequal. Most dont make any sense in regards to taxes, and some, like a different standard deduction that is based on your marital status, are ridiculous in their own right. Many of them seem as if they are designed to reward people for making poor decisions. For instance, Earned Income Credit. If you do not know what this is, it is a credit, which means you get money back, that is based on the taxable money that you make in a year. The government sets a limit of what a single person should make and if you are below that, whether you paid taxes or not, you get a credit that translates to a direct cash reimbursement. So, not only are you too poor to pay taxes, the government pays you when you file your tax return. All the tax breaks, regardless of their form or who they are targeted toward, eventually benefit people who seemingly have no desire to contribute to society but have no problem taking advantage of it. And who pays for that? The middle-class taxpayer. The person who makes too much money to qualify for ridiculous credits and arbitrary exemptions, but doesnt make enough money to qualify for deductions that are

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based on how much you spend or donate. The average, middle-class taxpayer ends up giving the government a larger percentage of his or her paycheck every year than lower- or upper-class people do. The final, and perhaps the most troubling, problem with the current tax system is its inefficiency. Taxpayers have to find their way through an uneven mess of paperwork that the government then spends billions of dollars processing, and it doesnt bring in enough money. Every year since the founding of the United States, the government has had a national debt. Some years the budget allows some of it to be paid back, other years the government runs in a deficit and borrows more money. Until the advent of the current income tax system, though, the deficit years were fairly even with the surplus years. When the government began collecting income taxes rather than relying on property taxes, tariffs, and other forms of taxation, the public response was about as positive as one would expect it to be. In order to appease people, they immediately began creating loopholes for the rich (who funded their elections) and breaks for the poor (so that it seemed that they were trying to help Americans). The idea was to buy off the squeakiest wheels. (Bartlett) The end result of all those breaks and loopholes is that the government ends up collecting less in taxes while having to spend more to collect those funds. At this point, the years in which the government collects enough tax money to pay for all the things it spends that money on are few and far between. With the way that the current system works, the majority of tax revenue comes from people who are considered wealthy. That is only about ten percent of the population. The remainder of the tax revenue comes from the middle-class, who make

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up about forty percent of the population. That means 45 percent of us pay no income tax. (Time for a flat tax?) Of that forty-five percent, only about half are so poor that they require government assistance. So, because of the complicated tax system, with all its breaks and loopholes, a quarter of the population, who possibly could, doesnt pay taxes. Thats a lot of lost revenue. What is the solution? How do we, as a nation, fix the tax code and make it more fair, efficient, and manageable? One option is the flat tax. A flat tax would make it so that everyone pays the same percent of their income in taxes. Nothing is fairer, as everyone contributes equally. It eliminates the need for complicated paperwork and a massive bureaucracy, as it would take a very small department (compared to the current IRS) to ensure that everyone contributes their share. And it would increase available revenue for the government because they would no longer be paying so many people to collect taxes from such a small percent of the population. [A] low, nodeduction flat income tax, levied as a percentage of earned income, would treat all taxpayers equally, eliminate political meddling and leave individuals free to pursue their personal version of the American Dream. (Giese) Of course, a true, simple flat tax is not a realistic option at the moment. So many things would have to change to implement a flat tax that it would be a near logistical impossibility. That doesnt mean that we shouldnt try for it, though, as even little changes add up. Perhaps we could start with eliminating some of the loopholes and silly tax breaks. Then we could bring the percent of income that everyone pays closer together. As tax law becomes simpler, we can begin to downsize the IRS. With a smaller overhead, more of the tax revenue goes to fund the services that we expect our

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government to provide. Eventually, we may even get to the point where people no longer put so much effort in to avoiding taxes. Though that particular scenario may seem unlikely, something has to change in the way that America pays and collects its taxes.

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Works Cited Bartlett, Bruce. "How To Clean Up The Tax Code." Forbes. Forbes.com., 26 February 2010. Web. 11 May 2011. Giese, Jim. "Flat income tax is the fairest way for America." Telegraph-Herald 4 April 2010: ITT Tech Virtual Library Proquest Newsstand. Web. 11 May 2011. Hall, Robert E and Alvin Rabushka. The Flat Tax. Palo Alto, CA: Leland Stanford Junior University, 2007. Web. 11 May 2011. Kappler, Brian. "It's income-tax time: Would a flat tax be a better way to go?" The Gazette. 30 April 2008: ITT Tech Virtual Library LexisNexis. Web. 11 May 2011. Neimat, Khalid. "Associations cling to 'flat income tax'." McClatchy - Tribune Business News. 21 January 2010: ITT Tech Virtual Library Proquest Newsstand. Web. 11 May 2011. "Time for a flat tax?" North Adams Transcript. 25 April 2011: ITT Tech Virtual Library Proquest Newsstand. Web. 11 May 2011. "Workforce of Tomorrow Task Force Final Report." August 2009. IRS.gov. Web. 30 May 2011.