Revamping The Tax Code

I don’t think there are too many people out there who would be willing to argue that the federal tax code needs to be changed–the question is how–and the other question is why is it the way it is.  According to Bloomberg.com, President Obama has asked former Federal Reserve Chairman Paul Volcker to  lead a tax- code review aimed at closing loopholes, streamlining the law and generating revenue.  Sounds like a great idea, but we are walking right into the law of unintended consequences.

The current tax code is so complex that very few people can understand it.  A study was done a year or two ago where a company had supposed ‘taxpayers’ call the IRS helpline for assistance with identical questions.  They got numerous answers–all different.  The reason for the complexity of the tax code is lobbying.  Every special interest group in the country wants a tax break for their group, and they lobby Congress for those breaks.  As long as there are Congressmen and lobbyists, we will not have coherent tax laws.  This is not news to anyone is Washington, so what does President Obama plan to do in overhauling the tax code?

One of the first priorities of the group will be to find a way to collect uncollected taxes.  That is a valid priority, but based on recent examples, if they are looking for people not paying their taxes, they might start with politicians.  The IRS has the means of collecting taxes owed, what needs to happen is a better way to find the people who owe taxes and are not paying them.  The IRS does not need to become more of a bully, it needs to become a better detective.

We need to be very careful of any tax code reform–the temptation will be (especially with one party in control) to make a more complex mess of things that will not be conducive to economic growth.  There is a lot of class warfare going on in Washingtoon these days aimed at people who make over $250,000 a year.  Increasing the taxes on those people will not help the economy–it will eventually destroy it.  Most of the people who make over $250,000 a year are either in sales or own their own businesses.  If you tax small business more, it hires fewer people because it cannot afford to expand.  If you tax salesmen more, they sell less because they know they cannot keep as much of their commissions, and economic growth slows.

The only truly effective way to grow the economy by using the tax code is to let everyone keep more  of the money they earn.  To use the tax code as a way of redistributing wealth is immoral, unAmerican, and just plain damaging to our country.