Tax code tyranny
The poison of politics brings us the complex racket
Mid-April is a time of strange juxtapositions. April 19 is the anniversary of the Battle of Lexington and Concord, the first conflict of the American Revolution, during which plucky colonists decided that they had had enough of being taxed by a strange and distant governing authority.
Most years, April 15 is tax day, when tens of millions of Americans — the forebears of the Revolution — sit down and fill out an endless stream of tax paperwork mandated by a strange and distant governing authority.
Don’t get me wrong: I am all for paying my fair share in taxes, although it would be nice if our betters in Washington, D.C., were a tad more judicious in how they spent my money. What really steams my clams is all the paperwork that goes along with submitting my check.
A big reason doing our taxes is so complicated is congressional politics. Rep. Barber Conable used to call it the “ABC Problem.” Constituent A comes to Congress complaining about some situation or other, so he gets a tax break. That brings Constituent B calling on Congress, bellyaching about how Constituent A’s write-off created a dilemma for him and asking for a subsidy of his own. That, in turn, creates a headache for Constituent C, who wants help of his own. And so on and so forth.
The next thing you know, you’re up to your eyeballs in forms, worksheets and receipts.
In a 2011 study, the Laffer Center, a conservative think tank, estimated that Americans shelled out more than $430 billion in 2010 “to comply with and administer the U.S. income tax system.” That number not only includes direct expenditures (like paying H&R Block), but the dollar value of the time lost by those brave enough to do their own returns, as well as the administrative costs to taxpayers for running the IRS.
That is the cost of politics, right there. Congress could give us a straightforward system that simply funds the government — but instead it likes to use the tax code to shell out benefits to key constituencies, helping members of Congress win re-election.
Indeed, the tax code amounts to a massive, politically motivated experiment in social engineering. Politicians have decided it is better for you to own your own house, so homeowners get a tax credit. They think you should get health insurance through your employer, so employees get a tax credit. They think it is better for you to have kids, so parents get a tax credit. And on and on it goes: If you do the things Washington, D.C. wants you to do, you pay less in taxes; if you don’t, you pay more.
And in all kinds of subtle ways, the tax code favors the wealthy. A complex tax system requires experts, and experts cost money. This is why the Fortune 500 companies shell out big bucks to hire former government tax officials — an advantage that small businesses cannot come by.
Beyond that, many of the most politically cherished deductions — like the one for employer-provided health benefits — are really just welfare for the middle class, who are more likely to vote than the poor.
The most amazing thing about our income tax system is that, back in the early 20th century, it was originally heralded as a way to reform the old, corrupt system of tariffs that funded the government during its first 125 years of existence. But now the cure has become worse than the disease.
If it serves no other purpose, April 15 reminds me of why I’m a conservative. It’s not that I think the big, bold goals that liberals have are unworthy. They often are. It’s just that advocates of an everexpansive state never seem to fully price politics into their equations — that seemingly inexorable tendency toward waste and needless complexity, as well as the government’s peculiar habit of favoring the wealthy and well-connected. The tax code reminds me that, sometimes the cost of politics is just too high.