In recent weeks, we’ve heard that one after another of President Barack Obama’s cabinet nominees failed to pay their taxes properly. They’ve had significant problems dealing with everything from self-employment taxes to tax liens on a business.
But whether or not these underpayments resulted from intentional fraud or honest mistakes, taxpayers should direct their ire towards the true culprit – an incomprehensible tax system at all levels.
Maybe now that so many of their own have been caught in its traps, policymakers will finally reform the tax code and free our economy from its painful grip.
Before Obama’s cabinet nominees, there was Rep. Charlie Rangel, D-NY, who failed to report and pay taxes on $75,000 of rental income from a beach house in the Dominican Republic he has owned since 1988.
When pressed to explain, Rangel claimed that “cultural and language barriers” made it impossible for him to determine his tax liability. Millions of Americans who’ve had run-ins with the Internal Revenue Service would probably agree with Rangel’s observation, though perhaps not in a way he had hoped – to them the tax code itself certainly does seem to have been written in something other than English.
Treasury Secretary Tim Geithner got into trouble for failing to pay self-employment taxes on his work for the International Monetary Fund. Former Sen. Tom Daschle, D-SD, erstwhile nominee for Secretary of Health and Human Services, failed to pay taxes on the luxury car and driver service he received.
Former Chief Performance Officer nominee Nancy Killefer didn’t stay current with unemployment taxes on household help. Rep. Hilda Solis (D-CA), nominee for Secretary of Labor, ran into her own problems when her husband only paid thousands in tax liens on his business dating back more than 15 years just before she was nominated.
All have pled ignorance and promised to rectify the underpayments. But Rangel and Obama’s nominees are precisely the kind of people who should be able to figure out their taxes.
Rangel chairs the House committee that writes the tax code and he still couldn’t understand it. Geithner is a former head of the New York Federal Reserve Bank and now runs the IRS as Treasury Secretary, but he couldn’t figure it out.
Killefer is a former Treasury official and member of the IRS Oversight Board, yet she failed to calculate her taxes correctly. Daschle spent nearly 20 years in Congress, but his taxes were a mystery to him. Solis is a four-term congresswoman, yet her husband had trouble.
If this distinguished group can be so clueless about their taxes, then how the heck are the rest of us supposed to figure it out? Will Rogers was once said to have quipped that the income tax has made more liars out of the American people than golf.
If he were alive today, however, Rogers might have a different observation: Because of its absurd complexity and length, our tax code itself makes “liars” out of millions of honest Americans every year. And unlike most amateur golf games, the stakes can often consist of a taxpayer’s life savings.
Perhaps more important than its being impossible to decipher, the tax code is an enormous drag on our economy, something we can little afford in these difficult times. The National Taxpayers Union annually researches costs associated with the tax code, and the numbers are disturbing.
Individual taxpayers spend more than 3.5 billion hours complying with the code. That time is worth an estimated $92.6 billion. They also spend an additional $27.7 billion on preparation services, software, and other out-of-pocket costs.
For their part, corporations spend about $170.4 billion on tax compliance, or the equivalent of more than 40 percent of all corporate tax collections from 2007. In total, more than $290 billion is flushed down the drain of tax compliance every year at the federal level.
Scrapping our 67,000 page monstrosity of a tax code and replacing it with a simple, easy to understand national sales tax or a flat income tax would be a short-term stimulus without the long-term harm of the massive borrowing that Congress and President Obama favor.
Let’s give the average 1040 series filer their 26.5 hours and $207 in compliance costs back and create a tax code that even Congress can understand.
Andrew Moylan is government affairs manager for the 362,000-member National Taxpayers Union (www.ntu.org), a non-partisan citizen group founded in 1969 to work for lower taxes and smaller government at all levels.
