Did you fill out your tax form this year? I don’t mean just sign on the bottom line and send it in. I mean did you actually fill out the whole thing yourself?
If you did, you’re in the minority, because six out of 10 American taxpayers use a tax preparer to do the work. And it’s no wonder. The tax code has become a monster since federal income tax became law in 1913. At that time the rates began at just 1 percent for folks making over $3,000 a year and topped out at 7 percent for the richest. But a greater contrast with present day than the percent collected was the simplicity of the past.
In the year 1914, the 1040 form fit on one page and would take no more than an hour to complete for the most complicated case. Today, even relatively uncomplicated cases require many hours of preparation. And as we all know, time is money. The amount of time we have to spend filling out the forms ourselves is simply not worth it for 60 percent of us. And even if you have a tax preparer, there’s the anxiety caused by wondering if the preparer got it right, or if you’ll get that dreaded letter from one of the country’s 100,000 IRS agents. Anxiety kills, and so do taxes.
So why is it all so complex? Mostly because politicians have been growing the government so much that they need enormous resources for their spending. But because they don’t want to draw attention to their avaricious thirst for more of our money, politicians hide tax increases in a plethora of tax bills, each with dozens of little exceptions for their friends and contributors. I know this sounds like conspiracy madness, but the power of lobbyists to affect bills passed by Congress is very real. And no bill brings out more lobbyists than a tax bill.
Lobbyists are hired by corporations to make sure that our ever-increasing budget is balanced on the backs of the average taxpayer rather than their corporate clients. And the lobbyists usually win. Otherwise corporations wouldn’t pay them so much, year after year. In fact, the tax code itself, with its hundreds of thousands of pages of regulations, rulings and manuals, is proof positive that lobbyists have more influence on law makers than voters. Voters want simplicity, not complexity in their tax code.
The Tax Foundation’s 2007 annual survey found that 83 percent of Americans found the tax code too complex. And while the average American paid 32.7 percent of their income on taxes, the Tax Foundation survey found that Americans believe they should be charged no more than 14.7 percent of their income for taxes—federal, state and local combined! This figure has actually fallen, from 16 percent in 2005 and 15 percent in 2006. So Americans’ belief that they are getting less for their money has been intensifying. And their belief that the government is hiding burdensome tax rates in tax complexity is borne out in our ever-growing tax code—easily the most complex in the world.
So far, no politician has given Americans what they truly want: lower taxes and a genuinely simple tax code. One guy who tried to run on that issue never made it. He’s the man behind the show I host called “Forbes on Fox” (Sat. at 11 am, Eastern Time). Steve Forbes proposed a flat tax of about 17 percent, and a tax form that could fit on a postcard.
Since Steve’s now backing Rudy Giuliani for president, I asked him last week whether he had talked Rudy into supporting a flat tax. He said Rudy believes taxpayers should have the option of going with a flat tax or sticking with what the IRS lays out for them now. But will Rudy forget all this if he becomes president? Many a president has lost the gumption to take on the lobbyists once in office. Who knows whether Rudy will fold like all others.
But until we have a president willing to place the concerns of the American voter above the pressure of lobbyists, we’re stuck with what we’ve got: a tax rate that is far too high and a tax code that is far too complex. I’m generally optimistic, but I’m also a realist who was raised in Washington, D.C.
It’s going to take somebody very special to take on those who keep our tax code complex. Reagan tried and failed to simplify the code. Rudy has stood up to the New York mob and to foreign terrorists. But can he stand up to the tax lobbyists inside the Beltway? Even his co-chairman Steve Forbes doesn’t have the answer to that.
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David Asman is the host of "Forbes on FOX" which airs on the FOX News Channel, Saturdays at 11 a.m. ET.