Tax season sheds light on imperfections
Published: Monday, February 3, 2014
Updated: Monday, February 3, 2014 19:02
With tax season underway, Americans must decide whether or not to file for themselves.
If you elect to have someone else do your taxes, you are in good company.
USA Today reports that less than one in three Americans currently file their own taxes. With tax codes as complicated as they are today most Americans would rather let an accountant deal with something so critical.
The modern American tax system is a convoluted mess. Most of the blame for the complications falls on Congress.
Congress has not completely rewritten tax law since the inception of the federal income tax in 1913.
To update the century-old codes, Congress simply piles new rules and regulations on top of existing codes rather than rewriting them.
The result of 100 years of pileup is alarming. It was estimated that 1.3 million pages of tax code existed on the federal level in 2012.
This was before 2013 tax laws or any of the Affordable Care Act’s tax implications went into effect.
So, with all of these tax laws in effect, the system should be air-tight, right?
Although a slew of laws exist to aid in the collection of tax on the federal level, a massive tax gap still remains.
The IRS defines the tax gap as the amount of taxes owed each year that is never paid, in other words, a form of tax fraud. The IRS only estimates the tax gap every five years.
In 2011, the tax gap stood at a staggering $385 billion.
Many politicians in recent years have called for a simplified tax system, assuming it would help reduce tax fraud.
In the 2012 republican presidential primary, candidate Herman Cain ran with a simplified tax structure as a major topic on his platform.
The “9-9-9” tax plan would have simplified federal taxes by replacing the current tax code with three taxes: a 9 percent business tax, a 9 percent income tax, and a 9 percent sales tax.
While a simplified tax code may appear to help the average American, the tax code is complex for a reason.
While a simplified Cainsian tax code would allow every person to easily calculate taxes owed and eliminate the need for tax professionals, major concepts in the current code are lax in such a system.
With such a simple code, no graduated tax brackets are suggested.
Graduated tax brackets allow the government to tax greater percentages from those who can afford it.
Even the first income tax in 1913 included a graduated system; every American paid one percent of income and the wealthiest paid seven percent.
A simplified tax code would most benefit the rich.
The current system of tax credits and exemptions would also be endangered with a simplified code.
As it stands now, every bit of income a person makes is directly taxable unless explicitly stated in the tax code.
Similarly, no tax credits are given unless stated in tax code.
All of these very specific exceptions to the tax law are designed to help middle and lower class Americans by reducing tax burden.
If credits and exemptions are removed, the tax code would further favor the rich by treating all Americans in the same manner.
While the tax system is currently a jumbled mess that usually requires a professional to help navigate, those same aspects which make it complicated help protect the middle class.
An accountant would not be required to file taxes, but economic inequality may rise.
So the next time a politician proposes a simplified tax code, consider the implications and remember that the current laws are complicated for a reason.