NCPA - National Center for Policy Analysis


March 27, 2008

With April 15 looming, it is worth considering the role of our tax system, not tax rates, in exacerbating America's debt.  Liberals and conservatives can disagree about tax rates or types of taxes, but it is hard to disagree that how the United States collects taxes could not be much more dysfunctional, says Andrew Yarrow, professor of U.S. history at American University.

Moreover, almost no taxpayer, expert, or politician likes the current U.S. tax system, which is insanely complex, grossly unfair and horribly inefficient.  Several basic problems are inherent in the current system:

  • Income taxes, with 900 or so IRS forms, devour 3.4 billion hours of Americans' lives every year, or 25 hours per taxpayer; time spent preparing and paying taxes costs our country between $240 billion and $600 billion in 2005, according to the Government Accountability Office (GAO).
  • In one recent year, about $300 billion in taxes owed -- more than recent deficits -- went uncollected, as citizens, so fed up with the IRS or so willing to cut ethical corners, fail to report income.
  • One-third of Americans pay no income taxes, up from one-fifth in the mid-20th century; while many are low-income, there are good citizenship reasons for all Americans to pay taxes, even if this is not a big revenue-raiser.
  • Hundreds of billions of dollars in forfeited revenues from market-distorting tax breaks go to businesses and special interests for what many call corporate welfare; these range from farm subsidies for the mythic family farmers to the $225 billion-a-year exclusion for employer-based health care.

Yes, reducing long-term debt requires many other reforms -- most notably of entitlement spending -- but Tax Day could help us focus on much easier, tax-system reforms that could win broad support across the political spectrum, says Yarrow.

Source: Andrew L. Yarrow, "Making Tax Day Less Painful," Wall Street Journal, March 26, 2008.


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