The Challenge

The American Tax Plan for the 21st century

I don’t think anyone believes that the current method the Federal government collects income taxes works. In fact most hate it but aren’t quit sure why. Two alternative proposals have gathered some public support but neither has come close to becoming law. One is based solely on a flat income tax while the other a national sales tax. Both seem to have issues that bother people without them being able to articulate their objections beyond ‘something doesn’t feel right’. I believe that the one issue lawmakers fail to take into account is simple human nature. The current federal income tax system along with the two more popular alternatives is not only seriously flawed from an economics point of view but also a human nature perspective.

Most people are familiar enough with the current system and all of its flaws that it isn’t necessary to delve very deeply into those flaws. The fact is that it is consists of 7,000 pages of often contradictory tax code that must be interpreted by the IRS, the courts along with tax preparers. When multiple tax preparers all come up with different answers to a relatively simple return, as has happened in every test conducted, how can the public have faith in its fairness? On the corporate side, I have seen estimates that corporations spend as much making honest attempts to comply with the tax code as they pay in income taxes. Corporations are often forced to make business decisions based not upon good business practices but dictated by tax code. More and more corporations are moving their headquarters offshore to avoid much of the income tax confusion. Many are corporations that end up paying little or no federal income tax but spend huge sums of money ensuring that they are in compliance. I believe most would prefer to be good citizens but find the current situation too complex and costly and they simple raise the white flag and move. International studies have shown our corporate tax system is one of the most oppressive in the industrialized world. We live in a world wide economy and this will continue to force more jobs out of the country.

So what is the answer? I believe that the two current alternatives have some merit but are terrible flawed as well. As I looked at alternatives over the past 5 years, I came to the conclusion that some insight and guidance must be taken from human nature. A public acceptance and a ‘that feels right’ must accompany any new tax package.