April 10, 1998

April 10, 1998 | Commentary on Taxes

A Silver Bullet for the Tax Wolf

Medieval peasants thought the full moon could turn men into wolves. About now, that story seems credible. As April 15 (Tax Day) looms, otherwise gentle Americans start to bristle and howl-itching to sink their teeth into whomever devised today's labyrinthine tax code and the forms that go with it.

Despite outrageous tales of bureaucratic abuse exposed by this Congress, most IRS workers are not bullies or sadists. They are simply the representatives of a devilishly complex system that often confounds them as much as you or me.

The General Accounting Office reports that 47 percent of befuddled callers to the IRS receive inaccurate information. Each year, the IRS finds out that it has made 10 million computational errors. Alas, 5 million of its subsequent "corrections" also are wrong. But lest anyone imagine that IRS workers are hired for their imbecility, consider Money magazine's little experiment. Money asked 45 professional tax preparers to calculate a hypothetical family's tax return. The experts gave 45 different answers.

Computers can map our genes and put landers on Mars. But the tax code (17,000 pages, more than 5.5 million words) frustrates machines as well as men. Despite an $8 billion upgrade, IRS computers are still having trouble processing tax returns. You can almost smell the circuits cooking as artificial intelligence grapples with a host of contradictory rules.

The tax code is a hopeless maze because politicians have made it so. Between 1955 and 1994, Congress enacted 878 major changes in tax law; there have been 6,000 large and small alterations in the last 12 years. This incessant tinkering-motivated by the influence of $500-an-hour lobbyists representing 12,609 special-interest groups-not only frustrates accurate tax compliance, it forces normal Americans to pay greater taxes as the tassel-loafered gang wheedles exemptions and deductions for its clients.

When tax policy becomes a snarling nightmare like this, you're beyond a trim here and a trim there. You need a silver bullet. Fortunately, one is available: the flat tax.

Consider the many beauties of a flat tax.

(1) Fairness. The defining feature of the tax is that everyone would pay an equal share of income. Under the flat tax proposal advocated by Heritage Foundation economist Daniel J. Mitchell, families would get a generous deduction-more than $33,000 for a family of four. Every dollar above that amount would be taxed at 17 percent, whoever earned it. If a multi-millionaire made 100 times your salary, he would pay 100 times your taxes, period.

(2) Cleanness. Because the flat tax would eliminate shelters and loopholes, the special interests would lose their grip on tax policy. With the Influencers sent packing, government might be more ethical. It would surely be cheaper: The feds now spend $13.7 billion a year to enforce their byzantine tax code. That sum would shrink drastically when a flat tax allowed people to calculate their returns on a postcard-sized form.

(3) Prosperity. Under the current system, you make money and it is taxed. You put some of that after-tax money into stocks and your dividends are taxed. You leave some for your kids and your estate is taxed. All this tempts citizens to spend now rather than provide third and fourth tax helpings for a gluttonous government. But saving and investing are what spur long-term economic growth. A flat tax would promote those habits by taxing income just once.

Right now, government at all levels consumes almost 40 percent of family income. By contrast, medieval serfs had to give only one third of their output to the lord of the manor. Don't you think it's time for a little tax rebellion?

About the Author

Edwin J. Feulner, Ph.D. Founder, Chairman of the Asian Studies Center, and Chung Ju-yung Fellow
Founder's Office