As of February 1, 2010, there were a reported 3.8 million words in the Federal tax code or over 800 times the verbiage of the US Constitution. And I thought Tolstoy’s War and Peace (600,000 word est.) was a tough read. Imagine trying to play a game that had rules as extensive as our tax laws and were changing all the time to boot. Let’s see, a bishop can move diagonally as many spaces as possible except on the second move of the game, if the opponent’s queen’s pawn has moved and if the game isn't being timed.
To comply with this gargantuan code, an estimated 6 billion man-hours are needed to process our Federal taxes. We could have every man, woman and child in the state of Arkansas working full time for this task. Their state motto of “The People Rule” could be altered to “The People Decipher the Rules.”
Consequently, momentum is building for tax reform, with the “Fair Tax” in particular, gaining more attention. The basic premise of the Fair Tax is to replace our existing system with a national sales tax that would be collected at the point of sale. While I feel it’s an oxymoron to use the adjective “fair” with the word “tax,” it nevertheless represents a quantum leap forward over what we now have. Call it the “Simple Tax” and I'll stop splitting philosophical hairs.
Our current tax system has more flaws than simply its complexity, ambiguity and cost of compliance. Perpetual tax revisions are like tossing chum off the side of a boat in shark infested waters. The fins in this case represent lobbyists whose prime directive is to try and take a bite out of the tax burden for their respective clients.
It's only natural for people to want to hold on to as much of their money as possible and businesses to maximize their profits. Unfortunately, many decisions are not based on sound business principles but rather on “gaming” the tax system such as outsourcing, offshore banking and other mechanisms to shield taxes on income. Since the Fair Tax would involve consumption and not income, those dodges, at least in theory, would not be necessary. I’ve always been amazed at the concept of business intentionally losing money in order to gain money with a tax break. I like to joke that I lose money on each sale but make it up in volume. If I only had the right accountant and lawyer.
The tax code also serves as a tool for social engineering, attempting to manipulate personal choices and behavior. The Smiths decide not to have children and their income is taxed to the max. The Jones’ with their five kids receive a carload full of deductions. The Smiths however did get a tax credit when they bought their hybrid-powered Prius and Toyota made an extra sale.
As intriguing as the Fair Tax is, it seems that at this juncture, we would be putting the debt cart before the production horse. The main focus needs to be on how to reduce spending—not collecting. A tax code moratorium is a possibility. After a year or two of no new tax regulations, Americans would warm up more to the concept of simplicity that the Fair Tax offers. Recently, President Obama proposed raising the debt ceiling an additional 1.2 trillion dollars on top of the existing national debt of 15.2 trillion. If we can’t cap the debt, capping the tax code at 3.8 million words would be a moral victory.