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10 Outrageous Facts About the Income Tax
Cato Institute ^ | April 15, 2003 | Chris Edwards

Posted on 04/15/2004 6:52:25 PM PDT by phil_will1

As you struggle to prepare your taxes this year, you may take some comfort in knowing that your headache is being felt across the country. The following odd and outrageous facts show how widespread income tax problems are:

The U.S. "tax army" is bigger than the U.S. army in Iraq. Income taxes are so complex that there are up to 1.2 million paid tax preparers in the country -- six times more than the number of troops in Iraq. The tax army includes legions of accountants, lawyers, and computer experts -- some of the best minds in the country. Unfortunately, their brainpower is adding little to the nation's standard of living.

A tax form for every special interest. As the income tax grows more complex, the number of IRS tax forms has jumped from 402 in 1990 to 526 by 2002. Congress hands the accountants business on a silver platter when they create special interest tax forms such as "8845-Indian Employment Credit" and "8834-Qualified Electric Vehicle Credit." When Congress penalizes an activity, we get tax forms such as "6197-Gas Guzzler Tax." It's time to end the micromanaging and adopt a simple flat-rate tax. Until then, Congress needs to supplement "6478-Credit for Alcohol Used as Fuel" with form "XXX-Credit for Alcohol Used for Drinking."

Double-tax on dividends: 60 years and still not fixed. Sixty years ago, a Treasury report noted that "double taxation of corporate profits is the principal problem raised in connection with the corporation income tax." In the 1930s, a Treasury report argued that the tax disincentive to pay dividends caused corporate management problems. Recent scandals proved them right. Congress should bite the bullet and reform dividend taxes now -- before the next round of corporate scandals begins.

Congress promotes discrimination through the tax code. The front of the Supreme Court building boldly declares "equal justice under law," yet the income tax has hundreds of discriminatory provisions. For example, homeowners are treated more favorably than renters since they can deduct mortgage interest and other itemized deductions. Consider that a higher-income homeowner can effectively deduct car loan interest by shifting around his finances but a lower-income apartment dweller cannot. Americans would not stand for such discrimination on other taxes -- imagine if each shopper at Wal-Mart was assigned a different sales tax rate!

Congress on tax complexity: Who us? Congress frequently holds hearings on tax simplification so members can denounce the tax code's complexity. Each time, congressional experts and outside think tanks provide useful simplification ideas. Then when the TV cameras are turned off, Congress promptly ignores them and votes for more special interest breaks. The result: The number of pages in the tax code and regulations doubled from 26,300 in 1984 to 54,846 by 2003, according to tax publisher CCH.

AMT designed to catch 155 taxpayers will soon catch 37 million. The alternative minimum tax is an unneeded parallel tax system alongside the ordinary income tax. It began life in 1969 after Congress was shocked (shocked!) to learn that 155 wealthy individuals were not paying tax because they used too many of the deductions that Congress had provided them. The AMT has been a complex nuisance ever since. But this dumb idea aimed at the rich is set to explode on the middle-class as the number of AMT taxpayers skyrockets from 3 million today to 36 million by 2010.

Voluntarism works for the U.S. military, not the income tax. For years, officials have hailed the income tax as a voluntary system. The Treasury calls it "our voluntary tax system." The IRS says that it pursues "enforcement programs to promote voluntary compliance" and establishes "strategies to maximize voluntary tax law compliance by emphasizing customer satisfaction." But with 32 million IRS penalties assessed each year and about $10,000 in income taxes imposed on each taxpaying household, the tax isn't voluntary and these customers aren't satisfied.

Congress can't figure out how to measure "income." Although the income tax is 90 years old, Congress still can't figure out how to measure "income." Some income such as municipal bond interest is not taxed, but other income such as dividends is taxed twice. The income tax treatment of savings is particularly incoherent and unstable. For example, there have been 25 major changes in the capital gains tax since 1922. The solution is to replace the income tax with a low-rate tax that exempts savings.

Family saving shouldn't require an advanced math degree. Shouldn't saving for education, retirement, and other items be as simple as putting money in the bank? Instead, Congress has manufactured hundreds of special savings rules, such as for 401(k)s, Keoghs, deductible IRAs, nondeductible IRAs, education IRAs, Roth IRAs, traditional pension plans, annuities, SIMPLEs, SEPs, MSAs, and others. The IRS guide to IRAs alone is 105 pages long! President Bush's initiative to consolidate the savings plans and create a universal IRA would be a good step to bring some sanity to this mess.

Income taxes: A bad idea that got worse. The income tax is not an example of a good idea gone bad. It was bad from the beginning, and it just keeps getting worse. The income tax distorts financial planning and business investment, and it encourages tax avoidance and evasion. Because the income tax is built on an unworkable base of "income," the law is continually changing. Let's simplify Americans' finances and disband the tax army by pursuing fundamental tax reform.

Source: CCH Inc. Number of pages in the CCH Standard Federal Tax Reporter, www.cch.com.


TOPICS: Business/Economy; Constitution/Conservatism; Government
KEYWORDS: axixofevil; cato; incometax; taxes; taxreform
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You should check the link out - there is a graph of the pages of the system that is quite revealing. It validates what I have been saying for some time - the growth in complexity of the current system is unsustainable. If we don't get serious about Fundamental Tax Reform on a proactive basis, we will have to do so when the system collapses of its own enormous weight.

The second point is that this article by Cato does a good job of laying out a few of the problems with the current system (a thorough and exhaustive treatment would have been longer than War and Peace). However, their solution - the Flat Tax - is totally inadequate for the magnitude of the problem. It is the equivalent of treating a cancer patient with aspirin. These guys MUST be kidding.

1 posted on 04/15/2004 6:52:26 PM PDT by phil_will1
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To: ancient_geezer
tax reform bump
2 posted on 04/15/2004 6:53:05 PM PDT by phil_will1
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To: phil_will1
BUMP!
3 posted on 04/15/2004 7:19:31 PM PDT by upchuck (Pay attention!! This tagline changes on an irregular schedule and without prior warning.)
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To: phil_will1
Heard a fellow on the radio this morning that suggested 10 members of the US Congress be selected at random and forced to figure their own taxes.

Any Senator or Representative that made a mistake was to be immediately executed.

He guaranteed that the tax code would be simplified by next April 15th. Sounds like it would work to me.

4 posted on 04/15/2004 7:19:54 PM PDT by ZOOKER
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To: ZOOKER
suggested 10 members of the US Congress be selected at random and forced to figure their own taxes.

Any Senator or Representative that made a mistake was to be immediately executed.

AT RANDOM!???

That's discrimination! What about affirmative action? How can all the minority groups be assured they are properly represented?

Obviously the fellow on the radio has not thought this thing all the way through!

/sarcasm>

5 posted on 04/15/2004 7:44:24 PM PDT by TaxPayer2000 (The United States shall guarantee to every state in this union a republican form of government,)
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To: *Taxreform; Taxman; Principled; Bigun; EternalVigilance; kevkrom; n-tres-ted; Poohbah; CliffC; ...
A Taxreform bump for you all.

"A hand from Washington will be stretched out and placed upon every man's business; the eye of the federal inspector will be in every man's counting house....The law will of necessity have inquisical features, it will provide penalties, it will create complicated machinery. Under it men will be hauled into courts distant from their homes. Heavy fines imposed by distant and unfamiliar tribunals will constantly menace the tax payer. An army of federal inspectors, spies, and detectives will descend upon the state."
-- Virginian House Speaker Richard E. Byrd, 1910, predicting the consequences of an income tax.

 

If you would like to be added to this ping list let me know.

 

Thomas Hobbes from Leviathan

[Montesquieu wrote in Spirit of the Laws, XIII,c.14:]

 

-- a free people that pays slave taxes to its government is willingly training itself for bondage.
Alan Keyes 1999


6 posted on 04/15/2004 7:44:35 PM PDT by ancient_geezer (Equality, the French disease: Everyone is equal beneath the guillotine.)
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To: phil_will1
...(spoof of Schedule A)...

"line 27 (Miscellaneous Deductions)---your deduction is limted by 2.5% (.025) of your Federal AGI on line 34, unless your deduction is listed as exempt in Publication 930 (Miscellaneous Deduction Exemptions). In that case, your deduction on line 27 is limited by 50% of the amount on line 22 (total income) less any excess charitable donations listed on Schedule A--line 17 (Carryover from prior year). This deduction may not exceed $5,000."
7 posted on 04/15/2004 7:53:29 PM PDT by jolie560
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To: phil_will1
"However, their solution - the Flat Tax - is totally inadequate for the magnitude of the problem. It is the equivalent of treating a cancer patient with aspirin"

Well what do you suggest, a "national sales tax" or VAT or "consumption tax'? I think these would be regressive.

Or are you a "one tax" person, like who was it? Henry George? Is that right? Only a tax on property? I'd go with that, but only if you restricted the franchise to those same tax paying property owners.

Let me know, je suis curious! (Like John Kerry, NOT! His motto, taxes: the more the better!)
8 posted on 04/15/2004 8:17:46 PM PDT by jocon307 (The dems don't get it, the American people do.)
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To: jocon307
The Texas Constitution, not too long ago, said that those supported by the county were not allowed to vote. Welfare is administered by the county, I believe.
Also, those who paid property taxes were the only ones allowed to vote on bond issues. Of course, those provisions have disappeared from the document.
9 posted on 04/15/2004 8:27:55 PM PDT by Abcdefg
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To: phil_will1
What I find interesting as well as outrageous is that there is one very small statutory line that permits the govt to tax its citizenry.
10 posted on 04/15/2004 8:36:46 PM PDT by lilylangtree (Veni, Vidi, Vici)
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To: ZOOKER; ancient_geezer
Heard a fellow on the radio this morning that suggested 10 members of the US Congress be selected at random and forced to figure their own taxes.

Actaully, this is the seed of a really good idea. Get your congressman and Senators on record. Do they figure their own taxes, yes or no?

11 posted on 04/15/2004 9:18:25 PM PDT by an amused spectator (Kristen didn't want to learn how to land the 9/11 Commission; she only wanted to steer)
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To: ancient_geezer
bttt
12 posted on 04/15/2004 9:20:54 PM PDT by Balata
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To: an amused spectator; ZOOKER
I like the second half even better:

Any Senator or Representative that made a mistake was to be immediately executed.

I vote we use a guillotine :O)

13 posted on 04/15/2004 10:04:54 PM PDT by ancient_geezer (Equality, the French disease: Everyone is equal beneath the guillotine.)
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To: jocon307

Well what do you suggest, a "national sales tax" or VAT or "consumption tax'? I think these would be regressive.

Try the NRST, H.R.25 "The FairTax Act

All legal residents will receive a FCA equivalent to the FairTax paid on essential goods and services The FCA will be paid in advance, in equal installments each month. The size of the monthly FCA will be determined by the government's PovertyLevel for a particular family size, multiplied by the tax rate.

In otherwords every legal resident will receive the same amount regardless of income level in place of personal exemptions of the income/payroll tax system the NRST replaces.

The beauty of the FairTax is that you can control how much you pay in taxes. If you happen to save, invest or spend a portion on used [previously taxed] items, you can get your effective tax rate below 9%.

To illustrate the plan's progressive nature we can examine the tax burden that a family of four will have at various annual spending levels (as opposed to , annual income levels of the income tax).

 


14 posted on 04/15/2004 10:17:58 PM PDT by ancient_geezer (Equality, the French disease: Everyone is equal beneath the guillotine.)
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To: jocon307
Actually, I am a one-tax person. Take the federal budget which is effected (usually) in October. Divide that number by the number of citizens in the U.S. Each owes the resulting number. Bill Gates pays what I pay. The street bum pays what I pay. If a couple has 8 kids, that couple pays 10 "shares."

I get the same "benefit" from government as Gates and the street bum. Why should any of us pay more than the other?

That system is not only fair, but it would immediately put a halt to the designs of our voracious, free-spending (Republican, if I need to remind anyone) Congress and our Prescription Drug Welfare, vetoless (Republican) President.

15 posted on 04/16/2004 1:05:25 AM PDT by jammer
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To: jocon307
"Well what do you suggest, a 'national sales tax' or VAT or 'consumption tax'? I think these would be regressive."

I favor the FairTax proposal, as articulated by Ancient Geezer in post #14. It is a National Retail Sales Tax, but it has a rebate to make it progressive. It is much fairer and simpler than the current system and has a myriad of other benefits over the Flat Tax, the current system and any other tax reform proposal.
16 posted on 04/16/2004 4:33:36 AM PDT by phil_will1
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To: phil_will1
I wonder (often) why a sales tax is great for cities and states, but is wrong for the federal government. I'm not pushing for one. I'm just wondering.
17 posted on 04/16/2004 5:11:08 AM PDT by whereasandsoforth (tagged for migratory purposes only)
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To: ZOOKER

18 posted on 04/16/2004 5:37:37 AM PDT by vannrox (The Preamble to the Bill of Rights - without it, our Bill of Rights is meaningless!)
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To: whereasandsoforth

19 posted on 04/16/2004 5:39:34 AM PDT by vannrox (The Preamble to the Bill of Rights - without it, our Bill of Rights is meaningless!)
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To: phil_will1

20 posted on 04/16/2004 5:40:25 AM PDT by vannrox (The Preamble to the Bill of Rights - without it, our Bill of Rights is meaningless!)
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