Opinion Editorial

            With the recent economic crisis the attention of American’s have been drawn toward the financial institutions and the government.  People want to point fingers and place blame for America’s problems on someone.  Are the financial institutions to blame?  They allowed us to acquire debt when we were not qualified.  Is the government to blame?  They didn’t stop the financial institutions and naturally they should have done something.  But pointing fingers does not solve problems and of course the nature of an economic crisis of such scale will include a number of inputs.  The more pressing question now is what can be done?  I propose that be solving the inefficiencies in the United States Government’s income tax system; the government will be able to more efficiently collect tax money leading to less waste and more economic stability. 

            When people think of the government and money the first thing that comes to mind is the national debt.  In the summer of 2010 the S&P downgraded the US to a AA rating on the credit scale.  This was an attempt to maybe show some weakness in the United States’ financial position.  In reality this was an unreasonable downgrade.  The main reason a company would be downgraded from an AAA rating to an AA rating is if there was a risk that they would default on their debt.  Now the US government does have a lot of debt, currently 15. 2 trillion but it is unreasonable to think that with the current amount of us debt and revenue that the government could not make payment the accrued interest.  Twenty years from now if national debt continues to grow like it has there might be a change that the interest payments might outgrow the national tax revenue.  In that case the government could just print more money, which would have two, positive outcomes for the government, one they could pay interest on their debt and two it would cause inflation which in turn would cause the real value of their debt to decrease.  With this said, there is no way that the US Government would ever default on their debt making the S&P downgrade of last summer completely nonsensical.  Now that we have established that the government will never default on their debt and assuming that the government will not cut spending, lets face it the government loves to spend money and so do we, what can be done to raise tax revenue, specifically income tax?

            The income tax system we have today has been evolving for over an hundred years and to fully understand where it should go in the future one must understand its history.  The idea of income tax was first flirted with during the War of 1812 and later the first wartime income tax was passed right after the Civil War.  In 1894 the first peacetime income tax was passed and a year later declared unconstitutional.  Later in 1913 Congress passed the 16^th amendment allowing the government to tax income.  Income was taxed very little initially, around 7%, and then that number rose quickly to as high as 94% during World War 2 for those in the highest tax bracket.  Today the highest tax bracket is taxed at 35% for any income over $388,351.  As time has gone on tax code has become more and more complicated.  It was estimated that in 2010 there were almost 75,000 pages of tax code.  To put that in perspective that is about 75 bibles worth of tax code. 

            Because of the complexity of tax code there are inherent inefficiencies in the system.  With over 75,000 pages no one can really understand all the tax code.  The tax code has grown so much that it is almost impossible to learn efficiently.  With all the inefficiency in 2005 it individuals, companies, and no-profits over 6 billion hours to comply with tax code costing over $265.1 billion.  The economic waste from the US tax code continues to grow each year.   Not only is there waste from complication there is also a huge number of people who cheat the tax system yearly.  It was estimated by the IRS that in 2001 30-40% of the population cheated on their tax returns, subsequently costing the government almost $300 billion dollars. 

            Many people feel that the current income tax code is unfair to the poor and the rich are those that benefit most.  Since there are increasing tax percentages based on higher income this is evidence that the current system is not properly functioning.  Because of the myriad of laws there are numerous loopholes of which the rich are able to take advantage. This results in fewer people paying the taxes that they should be paying and doing it legally. 

            As a result of the shortcomings of the current tax code, I propose implementing a flat tax system.  This system would include a single tax rate for all Americans on all income (work related, investments, foreign investments, etc.). It would also include a few deductions for necessities of life including; home expenses, food, clothing, transportation, etc.  This tax system would not unfairly tax the poor because the necessities of life would be tax-free and they would only be taxed on their excess income, as would the rich.  This system would also free up billions of hours currently spent on tax filing for other activities of economic interest.  Although there would be jobs lost, that have been created as a result of tax code complexity, new jobs would open with the new time and money available because of a more simple tax code.  Also with the simplification of a flat tax cheating on tax returns and evading taxes would become more complicated for the average person resulting in higher government revenues.   With the simplification of tax code and consequential increase of free capital and time the United States economy would be in a more efficient position for a speedy economic recovery.