So How Come the Tax Code is so “Unfair”?

[Originally posted on January 11, 2011.]

It’s that time of year.  Now, as the airwaves are filled with the same silly stories that the same silly people trot out every silly year, it’s timely, and I present it for your consideration, slightly altered and emended:

NOTE: Spent all day Tuesday [January 11, 2011] at an update on changes to Federal and Oregon tax law for 2011.

This is going to be very short — because I know how much you just love reading hours and hours of tax code and court decisions — but there are two concepts that I’ve not mentioned before, which I leave the reader to ruminate on.

1. “Fairness” in taxation.

“Simple” does not automatically equal “fair.”

It is a trope of American political rhetoric that because the tax code is complex (67,000 pages last time I checked), it MUST be unfair.

Which is ridiculous.

Here, let me “reform” the US criminal Code (which has quite a few pages itself): Five years imprisonment for all misdemeanors; death penalty for all felonies. No exceptions.

There: that’s “simplified.”

Is it fair?

You’ve got to realize that the complexity of the tax code comes directly from an ongoing attempt to BE fair: to make sure that a commercial fisherman and a backwoods logger are taxed fairly, as compared to a Wall Street broker or a Main Street banker (are any left?) or a waiter or a professional football player. Obviously the issues involve in each profession are very different, and trying to be fair IS NOT an easy matter.

And unfairnesses will ALWAYS crop up, which will then be corrected, adding more pages to the tax code. But the PUSH is usually towards fairness.

(Unless, as is currently the case, the top tax brackets were written BY the rich FOR the rich, in which case, YOU get to pick up their tab. That OUGHT to make you mad at the right parties.)

And, moving through Congress, you can understand the strange twists that sometimes takes.

The famous example comes from 1988, when Congress passed a law changing the way that very wealthy children (i.e. child actors) reported their income. This law applied to precisely FIVE children in the United States, but in every library, every post office and IRS kiosk in the USA there were copies of the new schedule that had to be generated for those five kids. Odd things happen. But …

Just remember this: when Steve Forbes is pushing a “simple” tax (“flat tax”) it isn’t because HE wants to pay more of YOUR fair share of taxes.

Not exactly.

2. The tax code is needlessly complex.

This is the fun one.

Last summer I took my Enrolled Agent education, and over and over again, there were the inevitable exceptions and conditions attached to each area of tax code. And it DID seem needlessly complex until I had one of those “A Way of Thinking” moments (from the classic Theodore Sturgeon short story).

In the story, the main character had a peculiar way of thinking that would often turn the binoculars around backwards. On ship, the crew spends eight hours trying to remove a giant gear that runs a winch. Nobody can crack the bolts holding it on. The lead character wakes up, comes on watch, looks at the problem, undoes the bolts holding the axle in place, takes a sledge-hammer and shoots the axle across the deck like a torpedo.

If you can’t take the gear off the axle, take the axle off the gear.

And I realized that EVERY exception was closing a loophole that someone had found as a way of getting around paying their fair taxes.

Now, when you consider that the tax code is 67,000 pages long, you have to admit that it is less a testimonial to the frivolous regulatory fever of bureaucrats than a testiment to the endless capacity of human beings to CHEAT.

Virtually every exception and subrule represents a monument to the nearly infinite creativity of the chiseler, the cheat, the selfish skunk who thinks that everybody ELSE ought to pay for HIS ability to access weather satellites, drive well-maintained roads, trade in weights and measures that are guaranteed by regulation, to purchase safe food, drink safe water, find his way to his destination via Global Positioning Satellites, etc. etc. etc.

Or access the internet.

When you take the axle off the gear, the “fairness” of the tax code seems an entirely different matter than first apprehended.

Something to think about.

Because as long as this trope exists that taxes are “unfair” and “needlessly complex,” it’s people like Steve Forbes — and not average taxpayers like you and me — who will benefit. Our system of progressive taxation has produced the greatest prosperity and fairest distribution of the tax burden in history, to this point, and created this amazing society that we all benefit from: flood control, reservoirs of clean water and power generation to weather satellites, interstate highways, cleaner air and food and water, and control of epidemics — all preventions of scourges that we take for granted, even though they have bedeviled humanity from day zero.

Just remember, the stores at night shine big and bright, deep in the heart of taxes.

Courage.

======================

A writer, published author, novelist, literary critic and political observer for a quarter of a quarter-century more than a quarter-century, Hart Williams has lived in the American West for his entire life. Having grown up in Wyoming, Kansas and New Mexico, a survivor of Texas and a veteran of Hollywood, Mr. Williams currently lives in Oregon, along with an astonishing amount of pollen. He has a lively blog His Vorpal Sword. This is cross-posted from his blog.

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Author: HART WILLIAMS

A writer, published author, novelist, literary critic and political observer for a quarter of a quarter-century more than a quarter-century, Hart Williams has lived in the American West for his entire life. Having grown up in Wyoming, Kansas and New Mexico, a survivor of Texas and a veteran of Hollywood, Mr. Williams currently lives in Oregon, along with an astonishing amount of pollen. He has a lively blog, His Vorpal Sword (no spaces) dot com.

  • RP

    Is it fair? No!
    Is it a job creator. Yes?
    Thousands of individuals work for the IRS or for legal or acccounting firms due to the complexity of the code.

    Fair is like 1913 when anyone with income between $1 and $20,000 paid 1% of their income in federal tax. This increased to 63% for the top earners. We did not have a tax policy that exempted so much income that a large number of individuals did not pay any tax.

    But fair is never going to happen as fair is when there is few exemptions, no huge staffs needed to interpret the law and thousands would be out of work, with the legal profession leading the way in lost revenues from tax work. What politician would bite the hand that feeds them?

  • slamfu

    Taxes are a pretty big subject, and one that involves a lot of math. If there is one thing I’ve noticed in life is that there is a lot of people that kinda suck at math. Whats more, a lot of these people kinda blow it off like math isn’t that important. These people then form strong opinions about things involving math, which are usually informed by non-math things like GOP talking points. Then they vote.

    I have a far amount of blue collar workers in my company. Many of them live paycheck to paycheck. Over beers we’ve discussed taxes and some of them think a flat tax is a good idea. Even after I pointed out how that basically means I’m going to be paying a lower percentage and they will be paying a higher one, they still think its more “Fair”. Guys like Forbes and Gingrich and others like them have done a real good snow job on voters. And shame on them.

  • slamfu

    RP, I seriously doubt the complexity of the tax code is a result of people who handle taxes just making more it complicated to make more jobs. It is far more likely that big money donors over time just put the screws to politicians to get their little slice of the pie a tax haven, and over time we get this giant unwieldy set of rules.

  • http://hisvorpalsword.com HART WILLIAMS, Guest Voice Columnist

    The endless exceptions to the tax code are the direct result of “clever” folks coming up with the most arcane scams and loopholes to avoid paying their fair share. (You know, like having Cayman Islands and Swiss bank accounts as a way of getting around taxable US economic activity.)

    As regards “1913″ I guess, like “Constitutional originalism” it’s OK to jettison 100 years of democratic consensus merely because one doesn’t like taxes.

    Our society evolves by degrees. To ignore that is to suggest that a single-celled organism is exactly the same as a full-term baby. Time matters, and a century matters.

    And, in case you are worried about all the math involved, as a Licensed Tax Preparer, I can vouch for programs like Turbo-Tax, which are very good for the average taxpayer and have actually brought the price of doing one’s taxes down overall. I merely wish that the Reagan-era “Two-percent” rule would be overturned so that average taxpayers could fully write off the price of their tax preparation, which is only fair. Call your congressperson.

  • zephyr

    “Our society evolves by degrees.”

    Or in the case of the 21st century, fractions of degrees.

  • CStanley

    Just remember this: when Steve Forbes is pushing a “simple” tax (“flat tax”) it isn’t because HE wants to pay more of YOUR fair share of taxes.

    interesting though how many people are making the opposite assumption about Warren Buffet.

  • http://hisvorpalsword.com HART WILLIAMS, Guest Voice Columnist

    This is not an argument, but merely a sort of knee-jerk false equivalency. Forbes has been (with the Heritage Foundation) pushing this “flat tax” notion since at least 1988, as I have chronicled for nearly 25 years now. I think Buffet is rich enough that he doesn’t mind paying his fair share of taxes. But that’s suspicious? Please make some reasonable refutation.

  • CStanley

    I was making an observation about perceptions, not an argument. Personally i think it makes far more semse to debate tax policies on their merits, not on whether a few individuals aren’t taxed as heavily as fairness would dictate,

  • http://hisvorpalsword.com HART WILLIAMS, Guest Voice Columnist

    A agree, CS. Tax policy is probably THE most important policy that we have and seems the least interesting to the majority of taxpayers and politicians.

    The AMT has been kicked down the road for decades now, but no one ever seems to want to seriously take a look at tax policy without a lot of unacceptable gimmicks that never go anywhere in the halls of congress. There is no seriousness in the discussion — just a lot of posturing.

    The result? For the past 10 years, there have been very few changes to the tax code at all. Just minor tweaks.

    What’s sad is that our fundamental economic soundness keeps eroding, but no one is willing to move in any direction whatsoever. More and more like the dance band on the Titanic. I may be a social liberal, but I am an economic conservative, and just sticking everything on the credit card (because we refuse to balance revenues v. expenditures) has us headed for a train wreck.