Simplification – Oh No, Not Again.

The President's deficit commission called for tax simplification. (It's on page 28.J)

The President has stated that we need to simplify our tax code.

Every few years, the Washington establishment starts to wake up to the fact that the Internal Revenue Code is an overly complicated and inefficient revenue collection vehicle. This is followed-up by the usual crowd calling for the implementation of some "quick and easy solution" like the "Fair Tax" (i.e. a consumption tax) or the "Flat Tax" (i.e. reducing the number of income tax brackets).

"If you follow my 10 step program you can eat all you want and still lose weight."

The "Fair Tax" is for all practical purposes a national sales tax on the sale of every new good and service and would completely replace income, estate, and employment taxes. One of the major selling points is that it would "eliminate" the IRS. The taxes would be collected via the sales tax system already in place in the states. While you might reduce the size of the IRS, there would still be a need on the federal government's part to monitor the sales tax reports, make sure that the proper amounts were remitted by the states, and remit the annual rebate checks (part of the plan). This would certainly be handled by the IRS or whatever its successor would be called. So the IRS wouldn't be eliminated, it just might be called something else. Additionally, this system would rely on the states' departments of revenue as the collector of the tax and first level of review on the tax filings and this could prove to be problematic.

The "Flat Tax" proposals would eliminate most income tax deductions and reduce the number of tax brackets to one. The primary selling point of this proposal is the ability for most people to file their income tax returns on a small "postcard". This sounds great. But most individuals who could file on a postcard can currently file on a one page form, as it is. This wouldn't be big improvement to them. The complexity of our current income tax system doesn't come from itemized deductions or multiple tax brackets. The complexity of the current system comes from determining what income is and, for businesses, what expenses are allowed to off-set their gross income. The "Flat Tax" proposals are very short of detail in this regard.

I'm not opposed to either of these proposals, but their proponents seem to oversell them. I think this becomes problematic in that any flaw in the proposals becomes a convenient excuse for the establishment to continue with the status quo or worse, to find new and different ways to use the tax code for the social engineering that has created the complexity in the first place.

I'm pretty sure we've heard all of this before and I'm not inclined to think that the end results will be any different than they have been in the past. Which means that after the forth coming round of tax simplification attempts we will have an Internal Revenue Code that is twice its current bloated size and three times as complex.