Coffee Talk on Tax Reform


Some “coffee talk” on tax reform:


Our national debt is now approaching $21 trillion ($231 trillion if you include unfunded liabilities like government pensions), and nobody seems to care.  Most of our congressmen still want to spend more and tax less.  I guess they think we can just print more money whenever we want and there is no down side.  They had better hope interest rates can be artificially held to near zero for generations to come.


Everybody knows the tax code is ridiculously complex.  But few understand what a drag on the economy this complexity causes.  Here’s something to think about:  the cost of filling out government tax forms is estimated by the IRS at $400 billion per year.  At the bottom of every business tax form is a small box that asks how many hours were spent preparing this form.  The preparer will write “2 hours” or “.5 hours” on the form, and the IRS rolls up this number, multiplies it by some arbitrary labor cost per hour, and comes up with $400 billion.  But that’s just for filling out the form!  It doesn’t include the billions of hours spent on accounting to generate the numbers to report on the form!  I know some of this accounting also serves internal purposes, but much of it does not, especially in small businesses.  And we aren’t even counting the cost of the IRS, the IT systems required for data gathering, or the Advils swallowed every April.

I’ll bet the cost of reporting taxes easily exceeds a trillion dollars.  Think about it:  our annual GDP is $20 trillion.  Ask any business owner what percentage of the labor hours in his business are spent punching computers, gathering data and doing accounting.  A conservative average might be 25%.  That would be $5 trillion of bookkeeping per year.  Imagine what our economy could do if we didn’t spend a quarter of our time bean-counting instead of making something useful.


OMB Director Mick Mulvaney knows that there is terrible waste in government, and we could cut a huge chunk out of the federal budget without causing any pain for Americans.  And while he is making the effort to cut spending as best he can, it won’t work.  “Too slow,” says Mulvaney, an honors scholar and holder of advanced degrees in international economics, commerce, and finance.  “The only way to turn the ship around is to grow the economy.”

Mulvaney believes 3% GDP growth, which has been fairly common in our history, would grind down our debt and reduce the drag on the economy, but only only if we could muster some restraint in the growth of spending.  It’s encouraging and discouraging at the same time.  It’s definitely do-able.  But our elected class has learned that they can get elected and re-elected by promising to give everybody somebody else’s money.


The purpose of taxes is to fund the government.  Collecting taxes should be simple:  Here is the budget for next year (say $1 trillion).  Add up the total wages of all adult citizens ($33 trillion).  Divide – the answer is 3%.  Ask each citizen to send a check for 3% of their wages to the swamp.

That might be a little bit too simple – for example, all business and investment profit would need to be distributed as personal income, not retained.  But our tax code has grown to over 75,000 pages, and that’s because it is used for much more than just funding the government.  It’s all about controlling our behavior.  Most tax laws were put in place to reward some of us with tax breaks, or to punish some of us with higher taxes, or to encourage (or require) all of us to act in a certain way.

If you think the government should have less control over your daily life, you should want the tax code to be severely simplified, and the corrupt IRS whittled down to reflect its core mission.


Tom Balek – Rockin’ On the Right Side

It’s Hell! Tryin’ to make it
When you’re doin’ it by yourself
It’s Hell! Payin’ taxes
When there’s no money left

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