© David Burton 2005

Well, once again, that time of the year is approaching. It’s the annual madness called tax preparation time. To prepare my income tax return this past year, I went to the bookstore and bought my copy of J. K. Lasser’s Your Income Tax 2005. The book is 768 pages long with 49 chapters. In addition there is a 21 page supplement. Over the weeks preceding the actual preparation of my tax return, I laboriously pored over the various instructions, paying particular attention to the Filing Tips, Planning Reminders, Cautions, Law alerts, Court Decisions, and IRS Alerts.

During the previous 12 months, I saved all my receipts and other records that were relevant to preparing my tax return. I entered all the information that I could into my Quicken financial software. I bought and installed my TurboTax 2004 and my TurboTax State 2004 software. Finally, in the course of days, I imported all my Quicken data into my TurboTax program and I used the TurboTax programs to prepare and electronically submit my federal and state income tax returns.

I estimate that the time I spend in the course of a year to record tax related transactions at some 60 hours (5 hours per month), the time to “peruse” J. K. Lasser’s Your Income Tax 2005 at 40 hours, and the time to actually prepare and submit my tax returns at 16 hours. This totals to some 116 hours per year of my time.

I’ve been going through this routine since 1994. Prior to that, I had an accountant prepare my tax returns. In 1993, it cost me nearly $500 to have the accountant prepare my tax returns. I still had to collect and organize my records for the accountant and I still bought and read a tax preparation guide.

Consider what all this means to each and every one of us. We, as a nation, are wasting the time of taxpayers (that’s you and me), the resources that comprise the legal, accounting and other tax preparation organizations, and the need for the bureaucracy that we call the Internal Revenue Service (IRS) and other governmental organizations that are involved in tax collection (including preparing and updating the tax codes, investigations of tax fraud, and prosecution, etc.). This waste of resources shows up in the cost of goods and services produced (you and I pay these costs) and in the reduced competitive position of the goods and services we export because of their higher prices to cover the costs of lawyers, accountants, and government bureaucrats.

According to an article on page 33 of the April 15th 2005 Boston Herald, it takes Americans some 6.6 billion hours to do the paperwork for our tax returns. According to the government’s budget office, tax work “towers over the entire paperwork burden for the rest of the federal government.” The income tax code is an incomprehensible, multi-thousand page maze of inane regulations. Even the IRS can’t understand these regulations. As often as not, if you ask them for a ruling, they will give you an incorrect interpretation.

The time has come to stop this madness! The solution? Let’s do away with the income tax and replace it with a consumption tax, such as a national sales tax or value added tax (VAT). Let’s face it. The wealthy buy more than the poor. Therefore, they’ll pay more with a consumption tax than the poor. The more a person makes, the more the person will spend and buy, and the more that person will pay in terms of taxes. You and I will stop wasting our time preparing income tax returns. The lawyers and accountants can turn their talents to more useful pursuits.

According to Howard Banks (Forbes, August 3, 1993), “in its purest form, a tax on consumption would replace the income tax and would tax only the money that people (or companies) actually spend. Left in the bank, money earned but not spent becomes a kind of universal IRA, tax-sheltered.”

A national consumption tax might work something like this: For individuals, taxes would only be paid after reaching an income above a set threshold, perhaps $20,000 plus deductions for dependants. For simplicity, all individual taxpayers would pay taxes on everything throughout the year but would then receive tax rebates at the end of the year covering the first $20,000 of income. “A consumption tax would, for example, eliminate many present distortions, such as taxing capital gains at rates different from income, and the double (or treble) taxation of corporate dividends. … The source of income would no longer be important, just what’s done with it.”

As Malcolm Forbes noted in 1993 (How to win the tax issue: flatten it, July 13, 1993), “Whatever the variant, a flat tax would trigger a volcano-like economic boom. The prodigious amount of brain power and time now spent on coping with our currently incomprehensible tax code would be released for productive uses. This redirection alone would hugely stimulate the economy.
    “The flat tax would largely eliminate a powerfully corrupting influence on our political life. Countless millions of dollars are given for tax-code-related purposes – fending off destructive changes, pushing special-interest amendments.
    “Fairness would be enhanced: The more you make, the more you pay. Striking disparities in taxes owed on similar incomes would end.”

In a 1994 article, Forbes wrote that the elimination of the income tax code, “would redirect an immeasurable amount of American brainpower from the numbing exercise of coping with the incomprehensible tax code to more productive purposes. There would be an enormous increase in efficiency.” In the same article, Forbes estimated that the savings from eliminating the federal income tax would amount to “$100 billion now spent filling out tax forms and other forms of compliance and another $100 billion wasted from investments being made for tax (avoidance) rather than economic purposes.” Eliminating the income tax, “would get rid of a profoundly corrupting influence on our political life: the countless millions of dollars now showered on politicians and bureaucrats to influence tax-related rules and legislation.”

As recently reported in Forbes Magazine (March 28, 2005, page 56), even Alan Greenspan has come out in favor of a consumption tax. According to Greenspan, one advantage of a consumption tax is that it encourages personal savings, which in turn will help to reduce our foreign trade deficit.

The time has come to get rid of the tax man as we know him. Let’s get rid of the income tax and replace it with a spending tax. At the same time, let’s get rid of the thousands of pages in the current tax code and let’s replace it with a streamlined and simplified set of rules that everyone, including the tax bureaucrats, can understand and follow.