10 Problems With the Income Tax

Tax foe calls the income tax corrupt, unfair and way too expensive.

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By Paul Bedard, Washington Whispers

With it getting to be Tax Day, April 15, then it's time for the anti-tax brigade to start the chant: Kill the tax code. Leading the rally this year is Ken Hoagland, who is chairman of the Online Tax Revolt and who just penned The FairTax Solution.

His idea is to trade income taxes for consumption taxes. Fix taxes, he tells us, "or rip it out by the roots and replace it." In advance of Tax Day, he wrote up for Whispers his 10 biggest complaints with the income tax:

1. It's too complicated. Even a degree in rocket science won't save you from 67,500 pages of all but indecipherable tax code regulations. It confuses the IRS, the secretary of treasury and even the former chairman of the House Ways and Means Committee. It's an annual nightmare that has spawned a tax industry based on complexity created by our own government.

2. It's too expensive. The complexity of the code costs a lot of money—more than $310 billion last year on the paperwork alone. Small businesses often pay more in paperwork expenses than the taxes they pay. Can any law be just, much less efficient, that costs so much to obey?

3. It's unfair. Income is commonly double and triple taxed, married people pay higher rates than singles living together and Congress' mistake in failing to index the Alternative Minimum Tax for inflation now threatens to define as "wealthy" those with as little as $80,000 a year in income. How just can a tax be that rewards those who hide income either here or offshore or have tax lobbyists to broker special deals?

4. It damages the economy. Income taxes are levied on work, savings, and investments. In essence, the government grows by taking money from what makes the economy grow. Such a system retards capital formation, job growth, and a higher savings rate and, as such, stymies economic growth or recovery.

5. It's been corrupted. More than a billion dollars a year is spent lobbying the tax code. Congress has sold off two to three tax breaks a day every day they've been in session for the last 20 years. It makes Congressmen powerful and lobbyists rich and creates a tax system with more loopholes than Swiss cheese. It's very lucrative for those in Washington and very bad for those without a lobbyist.

6. It undermines American companies. Foreign governments often forgo domestic taxes on products for sale overseas. American companies don't get that break and carry the second highest corporate tax rate in the world, employee FICA taxes, and significant tax compliance costs as the cost of doing business here. It puts the "Made in America" label at a significant producer price disadvantage and drives jobs overseas.

7. It hides the cost of government. Taxes are withheld from paychecks, hiding from plain sight the cost of federal spending and its relationship to our own earnings. For many Americans, federal spending mistakenly seems like "free money." The resulting tenuous connection between personal wealth and government profligacy allows politicians to promise more and more from the Treasury to win elections and satisfy their own political ambitions. That's destructive.

8. It's intrusive. Once upon a time it was no one's business how much money we made or how we spent it. Today it is the right and duty of the federal government to track every penny we earn, save, or spend. It has created a system where every business decision is weighed against tax consequences and where pastors are told what they can and can't say from the pulpit to keep their non-profit status.

9. It hurts consumers and workers. Business taxes don't come out of CEO's personal accounts but are paid for by consumers when taxes are "embedded" in wholesale and retail prices. When competition with foreign producers won't allow a higher price point to cover taxes, employee's wages and benefits take the hit.

10. It makes us into modern day serfs. We get what's left over in our paychecks after the federal government has taken its share. That means the fruits of our labors belong first to our government. That's backwards and not at all what the Founding Father's had in mind.

For more, check out his site and www.fairtax.com or his book The FairTax Solution.