What Can a Simplified Tax System Accomplish?

If you're anything like me, once the first of each new year arrives, you immediately begin to spend at least a portion of most days stressing over what is right around the corner, income tax filing that marks the Month of April as the most dreaded month on the calendar.

Now, although I have never, knock on wood been audited, the prospect of being audited even for someone like myself who tries very hard to maintain very exact and organized records is the most stressful part of tax season. Why you ask, simple, because the process is pretty much the exact opposite of the legal system as you are generally assumed to be guilty, not innocent of something going into the process, not innocent until proven guilty as with the justice system. Many friends, and family members, of mine that have gone through the process tell me that the anxiety is almost suffocating of getting the dreaded letter of audit notification and the preparation for the actual audit itself. The most ominous part of the audit process to me are the "helpful hints" on how to handle an audit if you are indeed notified as one of the chosen ones. They always start by telling you to tell the truth, and to be perfectly honest, if you have to be told that, you've got problems before you ever get started.

Back to my original point, this seemed like a good subject to tackle, as I saw a pretty interesting set of numbers published within an editorial titled "Why not a simpler tax system" in my local newspaper. In the first paragraph, the writer states that if ALL taxpayers just paid what they truly owed in 2006 on their taxes, there would have been in the fiscal year a $144 billion surplus, rather than a $247 billion dollar deficit! That is a staggering, and sobering contrast of numbers, at least it is to me. The true beauty of the editorial was the fact that this wasn't even the focus of the editorial, it was more about why and how people cheat on their taxes, and the author's explanations of such. The author by the way was Robert Whitcomb, the editorial pages editor of the Providence Journal if you would like to see his whole piece for yourself.

What impressed me about the piece was Whitcomb's progressive order of facts. He stared by saying that cheating is spreading, which on the surface isn't really any great revelation, but he goes on to explain how law abiding, or those that least try to be truthful and lawful when it comes to their taxes , are being penalized more than ever to cover for those that have the financial and legal means at their disposal to continually "dodge" their taxes. Whitcomb identifies the underreporting of business income and capital gains as the two biggest losses of tax revenue. He also mentions reporting personal expenses as business expenses.

As Whitcomb goes on to explain that many of these tax "ducks and dodges" are intentional, there are just as many that are not because of mind boggling complexities of the current tax system. As I mentioned above, those with the resources to avoid paying as much tax as possible may not really be intentionally trying to beat the system, because it is reasonable to assume that they themselves don't understand the system other than to know that the smartest move for them is to hire the best experts their money can buy to understand and work within it for them. I would venture a guess that these individuals probably will never understand their actual returns at least as good as I do, as they probably never even see the finished product, nor do they want to.

I don't think however that we can necessarily blame the tax system for having created the cheaters within it altogether, I think that it is more a product of the fact that the single biggest problem in America today is the fact the people spend far more time trying to "manipulate the system, or systems" as opposed to working within it. The key point here, and the beauty of our system to begin with, is the fact that if you don't like our system, you have the right and freedoms to work for changes in it. The problem is that takes effort, and people sadly, just aren't willing to extend themselves much these days..

So what is the answer to the tax system, easy, simplify it to a fairer, easier to navigate and understand type of system. Some people will tell you, Whitcomb included, that that along with simplifying the system toughening penalties for those that continue to knowingly attempt to cheat the system is also a key component of its success. I believe the opposite to be true, I think that creating incentive an reward levels within the simplified tax structure would reap far better long term success because the emphasis would be on working harder to follow, rather than beat the system, which translates into enhanced overall tax revenues.

Unfortunately, that is about as far as my limited understanding of the tax system goes, but I think it is great that those like Robert Whitcomb, who have the means to get progressive thoughts out in front of people for consideration use this to create positive thoughts toward positive change for all of us.