The U.S. income tax turned 100 last Thursday and no one claims it has gotten better with age.
But it has grown bigger. According to the CCH Standard Federal Tax Reporter, the tax code took 73,954 pages at the beginning of 2013.
And it has grown immensely more complicated. Here is a copy of the first federal tax form. It’s simple and pretty self-explanatory. Today, the number of various tax forms is mindboggling. If you want to get an idea of how many there are, look here.
Of course, the income tax was initially created as a tax only on the highest earners, so it was very progressive. President Obama is doing his best to take us back to that part of the original vision, with a twist: He wants to use the income tax as a leveling tool to redistribute money from high-income earners to low- and middle-income workers.
The U.S. didn’t have a federal welfare state in 1913. So tax revenue from high-income earners was used to pay the government’s bills rather than as a way to punish prosperity and achieve some type of egalitarian vision.
But now that the income tax has reached the century mark, it’s time to rethink it. The initial tax form was simple, and real tax reform would make it simple again.
Moving to a flat tax—or, at least a system with only two or three rates—and greatly reducing, if not completely eliminating, the countless available tax breaks could get us much closer to that 1913 form. That‘s similar to the Simpson-Bowles Commission’s recommendation that Obama completely ignored.
If we are going to have a personal income tax, the best system is a flat rate with few or no tax breaks. It’s not impossible. It’s just returning to where we started—100 years ago.
October 8, 2013