Modern Day Publius Letter #1- Reform the tax structure

The current tax system of the United States of America is broken beyond repair. The income tax system our Government uses to collect federal revenue is a complex and confusing proposal. Currently the United States tax code consists of 45,662 pages and its collection makes up for 18% of our GDP. This has come along way since the turn of the 20th century when the tax code consisted of only a couple hundred pages and only comprised 3% of our GDP. Today the Federal Government collects $2 Trillion dollars annually in taxes.

The tax system does not work though. In 1976 Jimmy Carter proposed changing the whole code and of course it went nowhere. The compliance cost of our current system cost our taxpayers $200 Billion dollars just to get the forms filled out and the taxes paid. If we include the lost time people have in order to figure out the complex code the number would be even more incredible. At the end of the day the tax code is not even fair. Congress has loaded exemptions and special cases through out the code that has created an inequitable system. People who can afford the best tax attorneys and advisors are able to pay less in taxes than those who cannot afford such special advisors. This just makes a bad system even more unfair.

As a society we have expressed concern about our ability to save as a whole. Our tax system makes it harder for that to happen. There is no advantage in the tax system to promote savings except for IRAs and Roth IRAs. These saving vehicles have limits though. Under the current law those under 50 can only save 5,000 dollars a year in these vehicles. If they are so good for us why limit the ability we have to contribute to them.

Many experts now believe that the income based system cannot be made simple and equitable. So what must we do to fix our tax system? A consumption based tax seems like the most logical solution. Of course special attention should be given to those who do not make a whole lot of money and could be hurt by this shift. We should make several considerations at this level, possibly exempting food and medicine, or refunding the tax paid on the first 20,000 dollars of goods purchased each year. A consumption based system with such protections would allow Americans to control the amount of tax paid by making decisions based on what they should buy. It would encourage savings because people would not be taxed on the amount of money they saved and would be able to grow their saving quicker without taxing the growth of their savings. This system would also fix problems that are occurring in the present system that are causing real problems today like bracket-creep and the Alternative Minimum Tax. We would also save a lot of money at the Federal Level by eliminating the Internal Revenue System.

A new tax system is a must for the United States of America. We must encourage saving while eliminating the inequities of the current tax plan.

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