April 15 is a bad day. Abraham Lincoln died on April 15, 1865; the Titanic sank on the same day in 1912; but more importantly, April 15 is the annual deadline for income tax filing.
Nobody likes paying taxes. Even for students who file relatively simple 1040s, in order to obtain refunds off their federal student loan interest, taxes can be stressful and expensive. The average taxpayer spends 37.8 hours preparing his or her taxes. This is not surprising, given that the IRS guide for Form 1040 is 142 pages. Besides the 1040, there are 581 other tax forms. These forms and instruction manuals are necessary; the tax code tips the scales at 66,498 pages.
Although prosperity is achievable despite it, this tax code harms the populace and the economy of the United States in many ways. The complexity of the tax code is unnecessary and shows incompetence on the part of its governmental creators.
Of course, America’s fondness for fortune is relatively indomitable. The economy is booming despite the tax code. Thanks to large tax cuts in 2001 and 2003, the unemployment rate was an astonishingly low 4.7 percent as of March 2006. In the past year, an average of 175,000 new jobs were created every month. Nearly five years after the economy was depressed due to the attacks of Sept. 11, it has reversed and found success. Even the threat of a perceived housing market bubble and rising federal interest rates have not stopped the immense productivity and ingenuity of the United States.
While clearly unable to stop the fortitude of American money, the tax code is one of the most significant and measurable threats to the economic welfare of the United States. More than 60 percent of American taxpayers turn to paid professionals to handle their tax returns – when those who use computer tax assistance programs are included, this number rises to more than 90 percent. The end result is an estimated $265 billion spent by Americans last year to ensure they are in compliance with an insanely complicated tax code. $265 billion is actually a low estimate, as it is only the measurable cost. Other ramifications are not so quantifiable.
For instance, tax complexity can interfere with retirement planning. The taxes paid on investment profits – known as capital gains – and other complicated tax rules, such as the Alternative Minimum Tax and depreciation rules, play substantial roles in the profitability of investments. If individuals and corporations cannot see how these tax rules will affect them, the confusion inhibits their confidence and willingness to invest. This results in diminished entrepreneurship and commensurate increases in inflation and unemployment.
The voluminous tax code also exacerbates non-compliance. If the IRS finds that a taxpayer has filed incorrectly, they can assess lateness penalties – which can accumulate up to 25 percent of his or her total tax burden. Penalties and fines issued by the IRS can easily put an average American household – statistically low on savings – into unmanageable amounts of debt. Businesses that owe back taxes may quickly find they are no longer in business. If one cannot afford to pay the IRS, that person may find his or her wages garnished. Businesses may find their assets sold.
This would not be so intolerable if the rules weren’t so complicated. However, charging a person or business for making an error when there are more than 60,000 pages of rules to follow is abhorrent.
The government simply does not handle money well. The budget deficit for last month alone was $85.47 billion, the highest on record for the month of March. Such debt levels are unsustainable and need to be decreased. Although this deficit is due in large part to an exceedingly expensive War on Terror, budget cuts in that area would not serve the United States well. The cause of terrorism is not America’s resistance to it.
National security is not an ideal place to save money. On the other hand, an overhaul of the egregiously complex tax code could be. Such a change could profit the United States immensely and contribute to lowering the deficit. According to a survey by the nonpartisan Tax Foundation, 80 percent of Americans favor such a change.
It would at least be a start. Every April 15, alternative tax plans such as a national sales tax or a flat tax grow more appealing. It’s time Washington looked into them.
Jordan Capobianco is a senior majoring in English literature.