Now that Tax Day is over, let's talk about what happened. (I know, I know. It's painful! But, if we are to have any hope of ever making it better, we've got to face the reality of what's happening.)
Filing Income Tax Returns is a Waste of Precious Time and Money
This year, in the United States, about 150 million individuals have filed or will file income tax returns. (Many, of course, get 6-month extensions.) Businesses, both corporations and partnerships, will file about another 11 million income tax returns. Businesses will also file about 30 million quarterly and annual payroll tax returns. Tax exempt organization will file about another 1.5 million informational returns. You can see more details from the IRS about this data here --> Number of Tax Returns Filed in the U.S. Each Year .
The average time for filing a non-business, individual income tax return is about 8 hours. The average cost of filing an individual tax return - just the cost of filing the tax return, not the amount paid to the government - is about $120. Thus, individual Americans will spend about 1.2 billion hours filing their tax returns this year. That's 137,000 years. And individual Americans will spend about $18 billion in costs to file their tax returns this year. That about 220,000 years of the average American's annual income.
I'm sorry to have be the one to say it, but that's insane.
But wait. There's more.
Business tax returns, on average, take 23 hours to file, the average cost for each is about $420. Thus, businesses in the United States will spend about 250 million hours filing their tax returns this year. That's about 29 years. And they will incur about $4.6 billion in costs to file their tax returns.
And I've hardly mentioned payroll tax returns. But suffice it to say that the onerous burden of payroll tax compliance is the main reason companies like ADP, PayChecx and Gusto fare so handsomely.
You can read more about these astonishing facts here --> The Annual Costs to Americans of Filing Income Tax Returns .
Filing Income Tax Returns is a Pain
I'm a CPA, and I hate filing my tax return. It generally takes me about three days to do my own tax return. Granted, my tax return is more complicated than most individual tax returns, but three days still is ridiculous. At the end of the three painful days, when I finally send my tax return off, naturally I feel like celebrating. But here's the thing. I haven't accomplished anything of value. I haven't created anything valuable. I haven't been productive. It's just been a wasted three days of compliance - three days that could have been better spent by serving my clients, or spending time with my family, or exercising, or reading good books.
I'm not the only one. I serve some of the smartest and hardest working people in the world: Silicon Valley startup founders. Here are a few of choice quotes from some of those founders about our tax system.
"The entire American tax process is a farce. I have no idea how anything works. It's absurd."
~ Oxford University, Master's in Economics
"I just got destroyed on my personal income taxes."
~ University of California, Berkeley, MBA
"I don't ever want to pay taxes again - ever, anywhere."
~ Columbia University, with a Bachelor's degree in Economics
I realize these are just individual, anecdotal quotes, but if you file an income tax return - anything more complicated than the 1040EZ - you know I'm telling the truth.
The Current U.S. Income Tax Law is Bad Law and Bad Policy
If anyone reading this knows President Trump, would you please relay this message to him, from me?
President Trump: I know you're intent on showing everybody how tough you are, and what a maverick you are, and how you're going to "drain the swamp". But, I'm unmoved by antics such as calling James Comey a "slime ball" and telling Kim Jong-un that your button is bigger than his. These displays make you look like a school boy, not a President.
I'm slightly moved by your "Tax Reform". Reducing the corporate tax rate from 35% (the highest in the free world) to 21% was a good step. But it was a small step. You've still got a major problem, because you haven't tackled entitlements, and you're on a spending spree like it's 1999, just like previous Presidents Bush and Obama. You Washington D.C. politicians are going to destroy our currency, if you don't get spending, the budget and the federal debt under control. And if you destroy our currency, you will destroy our nation. You know this, right?
But just reforming the Tax Code is not enough. Because, that still leaves us with a highly confused, politicized and irrational Tax Code. Plus, when the Communists - oops, I mean Democrats - get the chance, you know they will raise the tax rates again.
What you need to do is abolish the Tax Code and start over. Completely overhaul our tax system. If you want to impress me, here's how to do it:
(i) Repeal the 16th Amendment;
(ii) Eliminate the Income Tax; and
(iii) Abolish the IRS.
The Body of Laws, Rules and Regulations that Form the U.S. Tax System is 10 Times Longer than the Bible!
The official U.S. Tax Code - the body of laws enacted by Congress - contains over 3 million words. With the compliance regulations of the IRS added, the size of the body of federal income tax rules grows to about 10 million words. (And that doesn't even include the rulings of the Tax Court!) To put that in perspective, the English Standard Version of the Bible - both the Old and New Testaments - contains less than 1 million words. Thus, the comprehensive body of U.S. tax laws, rules and regulations is 10 times longer than the Bible! That's insane.
U.S. Tax Law is Insanely and Obscenely Complex
But even worse, it's filled with arbitrariness and political favoritism. It was bought and paid for by lobbyists and special interest groups, written by D.C. staffers and enacted by corrupt politicians. Does that sound good to anybody? The U.S. Tax Code favors new, "green" energy companies. But it also favors old, "dirty" oil companies. Does that make sense to anybody other than the lobbyists who bribed Senators and Congressmen and the Senators and Congressmen who were bribed?
We Can Do Better
"Don't bring problems; bring solutions." That was instilled into me by my first employer out of college. I'm still grateful for that.
Okay, here's the solution: The Fair Tax.
Under The Fair Tax, the national income tax would be eliminated. That's right - no more income tax. The Tax Code and the accompanying IRS regulations would be abolished - all 10 million words deleted. The IRS would be put out of business. Hooray!
Under The Fair Tax, the income tax would be replaced with a national sales tax. People, as well as businesses, would be taxed on their purchases and consumption. Goods purchased in the United States would be subject to the national sales tax. Services purchased in the United States would be subject to the national sales tax. Companies would pay a national sales tax on all their purchases and consumption, including for example: employees' salaries & wages; amounts paid to independent contractors and service providers; hotel rooms; air flights; taxis; rent; tec. There would be no more off-shoring of corporate profits by big U.S. corporations to avoid U.S. income tax! U.S. companies would no longer pay for armies of extremely expensive lawyers and accountants to play games to avoid income tax. Hooray! Purchasers of goods and services would be taxed a percentage of their purchases at the time of purchase.
We can still protect and help the poor.
To protect the poor, staple items like milk, bread and eggs, could be exempt from the national sales tax. Furthermore, the government could send a monthly "prebate" - a check in advance - to the poor to cover their estimated sales tax burden. Although this adds a level of complexity, this still would be much simpler than the current insanely complex system.
There can be progressive levels of sales tax rates.
To make the national sales tax more progressive, different, higher rates can be assigned to luxury items. For example, the purchase of a Ford car (they're still in business, right?) could be taxed at 7%, while the purchase of a Mercedes could be taxed at 12%. This is just an illustrative example. But the beauty of this system is the purcaser can choose whether he or she wants to purchase a Mercedes, and incur the higher tax rate, or purchase a Ford.
The Fair Tax is Good Policy
The Fair Tax is fair. Loopholes, political favoritism and corporate gaming would be eliminated. People and businesses would know exactly how they would be taxed on each purchase, and they could make purchase decisions accordingly. As already noted, the poor can be protected from a regressive sales tax structure that would be overly burdensome to them. Furthermore, a higher tax rate could be applied to luxury items, so that the rich would bear a relatively greater tax burden. By way of illustrative example only, non-luxury automobile purchases could be taxed at 7%, but purchases of yachts could be taxed at 15% A stay at Marriott or Embassy Suites could be taxed at 7%, while a stay at the Waldorf Astoria could be taxed at 15%.
The Fair Tax is simple. With relatively minor adjustments for sustenance items as well as luxury items, the same rule would be applied to all purchases by everyone - both individuals and corporations. This would eliminate the incredible waste of time and money that Amerian individuals and businesses are now spending on filing income tax returns. It would also eliminate the very complex gamesmanship that U.S. corporations engage in to exploit the political, nonsensical mess known as the U.S. Tax Code.
The Fair Tax is good policy. With the income tax eliminated, people would have greater amounts of disposable income either to spend or to save. To the extent they were to choose to save rather than spend, they could avoid taxation. Thus, "consumers" would be given an incentive to become "savers." That would be a very good result for our nation.
Come on, President Trump. Impress me. Abolish the IRS. Get rid of the Income Tax. That would really "drain the swamp".