April 9, 1999 | Commentary on Taxes
What would you say is the largest expense facing the average American family today? Housing? Food? Transportation? Clothing?
None of the above. By far, the biggest culprit is taxes. Federal, state and local taxes account for nearly 40 percent of the typical family budget. That's more than twice the amount for the next-largest expense (housing, 16 percent) and more than all the above items combined.
If this fact bothers you-and I sincerely hope it does-then consider a few other examples of the U.S. tax code gone awry from the new book, "The IRS v. The People: Time For Real Tax Reform."
The tax code now totals more than 17,000 pages of rules and regulations. It has become so hopelessly complex, even experienced tax professionals find it all but impossible to negotiate this labyrinth. Every year, Money magazine tries a simple test: It asks several professional tax preparers to complete a sample return. So far, no two have ever arrived at the same answer.
Americans waste an inordinate amount of time working on their taxes. The IRS estimates it takes 653 minutes-almost 11 hours-to fill out the 1040 "E-Z" form. Taxpayers annually spend about 5.4 billion hours filling out 569 different forms.
So-called progressive tax rates punish the most successful among us by hitting them with the highest tax bills. It's hardly an incentive to work hard and do your best. The top 1 percent of all taxpayers pay 30 percent of the nation's income taxes, while the top 10 percent pay 60 percent. The bottom 50 percent pay only 5 percent. This is beyond "soak the rich." It's "drown the rich."
The tax code penalizes two-earner married couples by hitting them with a "marriage penalty," a higher tax rate than they would pay if they were just shacking up. For example, the 28 percent tax bracket takes effect at $25,350 for single taxpayers. For a husband and wife, each earning more than $25,000 a year, rather than kick in at $50,700, the higher rate kicks in at $42,350.
Taxes on estates, which are more properly called death taxes, can spell ruin for family farmers and ranchers, who are often land-rich but cash-poor. Family businesses are threatened as well. Only 30 percent of family businesses or farms make it through the second generation, and only 13 percent make it through the third generation. The reason: death-tax rates up to 55 percent.
Charitable donations decrease under high tax rates and increase under low ones. Since people tend to give from their surplus, having more money increases their generosity.
The authors of "The IRS v. The People" know the problems with our tax code run too deep to offer the usual poll-tested, "tinker-around-the-edges" solutions. They know that it's not enough to chastise the IRS or provide targeted tax cuts. No, the best way for lawmakers to give Americans the tax relief they deserve is by scrapping the old code and enacting a flat tax.
The flat tax-applying the same rate to every American-fulfills the criteria of good tax reform: It's simple, it's fair and it's neutral. Your tax form would probably be the size of a postcard. You'd be able to keep more of what you earn. Most important, it enshrines a key constitutional principle-equality before the law.
Edwin Feulner is president of The Heritage Foundation (www.heritage.org), a Washington-based public policy research institute.