Ever since taxes were first assessed, no doubt for the mutual defense of a few caves, there has been an ongoing and entirely normal effort to pay as little as possible. Unfortunately, taxpaying is a zero-sum game -- when Smith pays less Jones must pays more unless there is a reduction in government spending, something which happens with the frequency of unicorns dancing in Central Park.

In modern times, our tax system provides at least one useful function: Thousands of pages of rules, exceptions, forms, publications and loopholes have created jobs for 1.1 million auditors and accountants as well as uncountable hordes of tax lawyers, bookkeepers, and tax collectors.

Beyond reasonable debates regarding what is owed or not owed, there are those who simply don't bother to pay or pay vastly less than they should, individuals who together created a net "tax gap" of unpaid money to Uncle Sam amounting to between $257 billion and $298 billion in 2001, according to the IRS.

It's not just individuals who pay less than their share, it's also big companies. While the neighborhood hardware store and barber shop struggle to stay in business, huge corporations benefit from international tax dodges and seem to have strangely low tax rates, if they pay at all.

The result is that the poor have too little to tax, the rich have too many lawyers, and the middle class winds up paying a disproportionate share of the tax bill.

To see how this works, consider the recent effort to end the abusive "Son of Boss" tax shelter.

As the IRS explains, "Son of Boss is a highly sophisticated, technically complex, no-risk scheme designed to generate tax losses without corresponding economic risks... The deal uses various financial products, such as currency options and government securities, in transactions totally extraneous to the investor's business or the asset sale creating the sheltered gain."

So far, the IRS says that "$3.2 billion in taxes, interest and penalties have been collected from the 1,165 taxpayers who are participating in the settlement initiative. The typical taxpayer payment was almost $1 million, with 18 taxpayers paying more than $20 million each and one paying over $100 million. Processing of individual settlements continues."

Oh yes, the IRS is also graciously helping states collect back taxes from scheme participants -- more than $160 million to this point.

You can see the problem. If 1,200 people unfairly fail to pay more than $3.2 billion in taxes, if the tax gap for a single year is $257 billion or $298 billion or whatever number, and if government continues to spend every cent it takes in -- and more -- then the rest of us are paying more than we should. Far more.

Don't blame the IRS -- it has the difficult job of collecting taxes according to laws passed by the Congress. Instead, the problem is that we elect officials who can only be re-elected if they can corner enough lobbyist cash to run again.

If you're in Congress, the best way to entice lobbyists support for your next electoral campaign is to agree that, yes, the nation's silo painters or whoever deserve wonderful treatment under the tax laws because they're obviously a "special" case.

There is now growing interest in a flat tax. It's an imperfect scheme -- but look at what it would replace. You'd control your tax bill by electing to spend or not spend. But a flat tax by itself is flawed in principle because it's also a regressive tax on the poor. The poor have fewer opportunities to save, so their relative tax cost would be higher. To overcome its regressive nature, a flat tax should be coupled with a system which also features rebates to the poor.

A serious and reasoned flat tax/rebate plan is now on the table. Offered by Rep. John Linder (R-GA), the FairTax (H.R. 25) would replace more than 50,000 incomprehensible pages of rules and regulations with 132 pages of new law.

Under Linder's plan, "the FairTax will repeal and replace the individual income tax, the capital gains tax, the payroll tax, the corporate income tax, the self-employment tax, the gift tax, and the death tax." Excise taxes would not be repealed. We would each pay a 23 percent tax on what we spend.

The flat tax favored by Linder is a "single stage tax meaning it will tax only the sale of new consumer goods and services at the final point of purchase. Used items will not be taxed. Business-to-business purchases for the production of goods and services will also not be taxed."

If 23 percent sounds like a lot, brace yourself and consider during the next few days how much you actually pay in income taxes, payroll taxes, interest and penalties. Think about how much it costs to prepare tax returns and how much time it takes to compile tax records.

In terms of real estate, no capital gains tax would surely boost sale activity and values. Buying and selling would be influenced by returns, appreciation and personal preferences rather than artificial and changing tax rules.

With a flat tax -- don't faint -- mortgage interest and property tax deductions would be eliminated. This would be fine because if there's no federal income tax there's no need for deductions.

On the rebate side, consumers would receive a monthly rebate on poverty-level spending. Rather than tax payments, there would be steady income from the federal government to those in need.

The Linder idea offers a lucid way to reform the tax system. But given the nature of the electoral process, how will it pass? No doubt, a lot of accountants and lawyers will contribute generously to any representative or senator who opposes such sensible thinking.

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

Published: April 5, 2005

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Peter G. Miller, also known as OurBroker®, is the author of six real estate books -- including The Common-Sense Mortgage -- and is the original creator and host of America Online's Real Estate Center. Peter's weekly columns appear in more than 100 newspapers nationwide, he is also published in a variety of other media outlets and he is a frequent speaker at national events and conventions. Peter welcomes your questions, comments, and news releases via e-mail at .