Only Suckers Pay Taxes
The IRS is going to get tough this year, we’re told. Brighten up--that’s the good news. There’s much worse to contemplate this tax season.
Our tax codes are too complicated. Not just by a little, but shockingly so. They invite manipulation and grandiose abuse. Public support for honesty in taxes--the “price we pay for a civilized society,” as Oliver Wendell Holmes Jr. famously put it--is eroding.
Ho hum. Are we surprised? Hardly. Insofar as I know, there isn’t a single person in the land who believes our tax system is fair or even remotely close to it.
Section 8 of the Constitution says this: “The Congress shall have the power to lay and collect taxes.” The 16th Amendment goes further: “The Congress shall have the power to lay and collect taxes on incomes from whatever source derived.”
In 1913, the first federal income tax form was three pages long. Instructions were a single page. The following year, Congress heard the first call for tax simplification--and, of course, ignored it.
Everyone knows the rest: Special interests have been loading up the tax codes with juicy loopholes ever since. Congress has spent 88 years trying to punish and reward behavior with tax breaks. And, all the while, the government has been chasing corner-cutters and cheats not with common sense, but with mountainous regulation.
The result? Enron reportedly paid no taxes for four of the last five years, deploying assets to more than 800 offshore subsidiaries, including 692 in the tax haven of the Cayman Islands. The true extent of this dodge has not been disclosed, except for sleight of hand like this: Using deductions for stock options, the company turned a $112-million tax liability into a $278-million refund.
A book documenting widespread tax evasion, “The Cheating of America,” reports that Enron is just one of thousands of corporations with assets over $250 million that claimed no taxable income in 1995. Among individuals in 1996, 16,000 of the richest Americans paid an effective tax rate under 10%, far lower than the burden on middle-class families. The richest 1% of taxpayers accounted for 15% of itemized deductions.
Here’s the rub: What they don’t pay, we make up for--$30.76 every week from every honest taxpayer--$195 billion total.
The “why” is simple: Taxes have become a sucker game for salary workers. The “how” is equally straightforward: Tax laws are a crime.
How bloated is the income tax code? To equal it in words, you’d have to clip this twice-a-week column until 2014. To match the number of words in the tax regulations, you’d be clipping until 2090.
Take just one question: Do you have a child? The IRS devotes 200 pages of regulation to help you close in on the answer, according to the agency’s taxpayer advocate, Nina Olson.
Recent court cases have shown that the business tax laws are so shot with loopholes that respected corporations think nothing of flagrant financial manipulation, eu- phemistically called “earnings management,” betting the odds that judges will uphold their actions as legal and that Wall Street will reward their ingenuity. As I said, paying taxes is for saps.
Regrettably, calls to simplify the tax system seem to have reached a modern low. Americans are exhausted, numb. We cannot decipher our telephone bills anymore, let alone the tax law. Politicians, always eager to trade loopholes for contributions, regard this silence as acquiescence. President Bush’s supposedly straightforward tax-rate cuts actually resulted in 440 changes in the IRS codes.
The cost: A nonprofit research organization, the Tax Foundation, has calculated that Americans pay a 20-cent “tax compliance surcharge” for every $1 collected. That’s what businesses, individuals and organizations pay to meet (or try to escape) their tax obligations. No wonder that in a recent poll, 24% of the country said it was OK to cheat on taxes--a leap upward from 13% in 1999.
The IRS, defanged and diminished for years now, promises that it is going to rouse itself finally. It has announced an investigation of up to 2 million individual taxpayers who may be using offshore trusts and accounts to evade taxes, accessing their money with credit cards. And it promises nearly 50,000 new random audits.
Maybe this new get-tough attitude will actually snare a grubby millionaire tax cheat here or there. It’s not much, but it’s the best we can hope for this April.
