A Taxing Time Of Year

John Stossel, who is one of my favorites these days, devotes his column today to that American rite of spring: Tax Day. The traditional April 15th was moved this year, of course, but it is still a time of anxiety and angst. Even those who are all proud of paying taxes and all admit that the system is overly burdensome. (He's never taken us up on our offer to help make him more proud, however.) Stossel explains what is wrong with the current tax code and why it is unlikely to change anytime soon.

Twelve years ago, Estonia became the first country to tax everyone — companies and individuals — at the same flat rate. It started at 26 percent, dropped to 22, and will go to 20 in 2009. There are a few deductions for things like mortgage interest, educational expenses, and charitable donations. Very low incomes are exempt.

Unsurprisingly, Estonia is booming. The former Soviet republic used to be poor, with an average income 65 percent below its European neighbors. Today, Estonians are almost as rich as their neighbors, and their economy is growing more than 11 percent a year.

Corporations like a tax system that is low and simple, too, and that leads them to do more business in flat-tax countries. American companies such as Microsoft, Colgate, 3M, Bristol-Meyers Squibb, and Johnson & Johnson opened businesses in Estonia after the flat tax was adopted. Twelve years ago, foreign investment in Estonia made up only 5 percent of GDP, but today, it's up to 20 percent. That means there's more money in the Estonian economy to tax. So while the tax rate dropped, government revenues actually increased.

So why can't we do that here?…..

……But here's a problem: Many in Congress don't really want to reform the tax code. They like things just the way they are. So what if it makes paying taxes a headache for you? It gives them the awesome power to dispense privileges, which helps curry favor with lobbyists.

Congressmen bicker over who gets to hand out these special treats. In 2004, Sen. Olympia Snowe deplored the "financial burden on shipbuilders," many of whom happen to operate in her home state of Maine, and got them a $310 million tax break. Alaskan Sen. Lisa Murkowski got her state a tax break on contributions for "charitable" whaling activities (whatever that means). And Sen. Saxby Chambliss demanded tax relief for the timber industry in Georgia.

So while business gets its tax breaks and congressmen get their campaign contributions, your spring weekend is devoted to wading through Form 1040 instructions.

The politicians get to glad hand with your money, you get the shaft. This is a bipartisan problem; neither party is very good at addressing the fundamental problem of a tax code that currently runs to 66,000 pages. And is growing. The estimated burden of all this on the taxpayer is actually greater than the Federal budget deficit. That's nothing to be proud of.

categories Taxes | Gaius Wednesday, 18 April , 2007

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