April 15 is the dreaded tax day in the United States.  Let’s face it, although most people recognize that paying taxes is a civil duty, when it comes time to pay taxes no one is exactly thrilled.  But the pain becomes even more accentuated when you realize that the entire tax system is broken.  What exactly is wrong with the tax system?  Let’s explore a few of the most obvious problems:

It is Mind-Boggling Complex

It starts with the fact that the tax code is so complex that even government officials who we should look to as role models cannot get it right.  Take for example Treasury Secretary Tim Geithner.  He almost lost his confirmation to one of the most powerful financial posts in Washington due to mistakes in his tax returns.  Other nominees to several other powerful posts were not as lucky – they never made it because of their tax-related problems.

The US tax code has an unbelievable 3,500,000 words, more than fours times the number of words in the bible.  No wonder there are so many mistakes in tax returns of even the most senior people in Washington.  Billions of hours and dollars are wasted every year by Americans just trying to comply with this monster.  What is the solution?  Not everyone agrees with his proposal, but Steve Forbes certainly makes a compelling argument by suggesting that a simple flat rate across the board would eliminate all this complexity and waste.

It Discourages Success

In the current tax system, the top 10% of tax payers pay for 70% of the Federal income tax burden.  Meanwhile, the bottom 50%, or half of the nation, only pays for 3% of the total Federal income tax collected.  What is the unintended consequence?  It discourages success.  It punishes the capital investors and business owners, who are the very source of job creation and economic growth in the country.

You may think that the top 10% are spoiled rich people who live an extravagant life, spending away their inherited wealth.  Although there may be a few of those in the top 10%, the great majority are regular people like you and me, who are interested in being financially successful and who have worked very hard in order to live a comfortable life.  We are not talking about celebrities, capitalist barons, or over-paid CEOs here.  We are talking about small business owners and double income professional couples who make this country run by going to work every day and managing businesses.  Why should they be disproportionately taxed for their effort in their search for success?

Much of the Tax Collected is Wasted

In 2008, $17.2 billion was spent on 11,610 projects considered “pork”.  Citizens Against Government Waste (CAGW) compiled the Congressional Pig Book Summary which lists 1,188 projects, totaling $2.8 billion, symbolizing the most egregious and blatant examples of pork.  These projects meet at least one of CAGW’s seven criteria, but most satisfy at least two:

• Requested by only one chamber of Congress;
• Not specifically authorized;
• Not competitively awarded;
• Not requested by the President;
• Greatly exceeds the President’s budget request or the previous year’s funding;
• Not the subject of congressional hearings; or
• Serves only a local or special interest.

It would be a lot easier to deal with April 15 if we had a tax system that was simple; that incented success and job creation; and where everyone paid their fair share.  You might even feel good about paying your taxes on April 15 if you knew the money was being used responsibly and not being wasted in “pork”.  Until then, successful people must focus on what they can control and continue to drive towards financial freedom despite of their disproportionate share of the tax burden. 

 

As they say, there are only two guarantees in life: death and taxes.