How's your headache?

I ask because yesterday was April 15th, the day spent by millions of Americans trying to figure out their tax bills, an annual process no less complex than interstellar astronomy.

If you want to know whether or not your business is successful, you add up your revenues and subtract your costs. The difference -- unless you're Enron - - tells the story.

But if you want to calculate your taxes, matters are not so easy. Like a philosophy quiz, there seem to be a lot of "right" answers.

NBC News tried a tax preparation service, tax software, and an accountant for a standardized return and -- surprise, surprise -- got three different bills. Money magazine called the IRS 120 times with a series of eight standardized questions. The answers for each question should have been identical, but the magazine says 75 percent of the answers were right -- and thus 25 percent were wrong. (See: Can the IRS help you?)

This is a better percentage than in the past but far below what might be expected of average taxpayers.

You can't blame the IRS, instead we need to look at the complexity of the rules created by government. The tax code includes some 7 million words, according to Americans for Tax Reform -- few of which are strung together in ways most people understand.

To make matters worse, it doesn't help that scammers are out there trying to take advantage of the system. For a fee, some helpful "tax advisers" are explaining to citizens that the federal government is paying reparations of $43,209 to the descendants of slaves.

You might think that such deductions would never pass muster with the government, but that's not the case: According to The Washington Post, reparation claims worth $2.7 billion were filed with the government and the IRS paid out $30 million. (See: IRS Paid $30 Million In Credits For Slavery, April 13, 2002)

The tax system we have today fails because it is both complex and inherently unfair. The reason for both conditions is that we have no shortage of special pleaders, each with a just cause and a valid concern that must be addressed in the federal tax code. The end result is a system where people with identical incomes pay vastly different taxes.

The problem is that we are each special pleaders. We think it's fine to have an extra deduction for the blind but not the deaf, for those over age 65 but not those over age 64, and for those with big medical bills but not huge tuition payments. We think there should be special deductions for cattle ranchers, companies that issue options, and oil drillers. Who among us favors an end to federal deductions for mortgage interest or state property tax payments? (I don't....)

What do to?

Assuming that tax fairness is a worthy national goal, and assuming for a moment that we would each benefit from a better system, two ideas come to mind.

How about a flat tax? Take your income, multiply by a given percentage, and that's it.

This approach would create instant unemployment for huge armies of CPAs and tax attorneys. Re-election contributions under this system would decline, something no one in Washington would endorse.

They are now trying a flat tax in Russia and the results are impressive. Given a country where tax avoidance is a national sport, the Associated Press nevertheless reports that a new 13-percent flat tax has raised income to the federal government by 50 percent. (See: "Russia's Flat Tax Rakes In The Cash," April 13, 2002)

If not a flat tax, how about a consumption tax? No tax forms here for individuals. Spend what you like, Uncle Sam will collect as you consume through a value added tax or "VAT". For a good explanation, see Bruce Bartlett's commentary with the National Center for Policy Analysis.

So will meaningful tax fairness come to pass? Of course not -- but it's worth considering as you mull over the meaning of Form 12617, Part B, Section 14....

For more articles by Peter G. Miller, please press here.

Published: April 16, 2002

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