When President Bush called for a simpler, fairer tax system in his party convention acceptance speech, the audience roared.
Small wonder. It takes, on average, 27 hours for each worker to comply with all the limits, exceptions and mandates that the U.S. tax code has become. And because time is money, this translates into $200 billion a year that the economy—that’s you and me—must spend to comply with the Rubik’s Cube that is the tax code.
In his speech, then, Bush tapped into a gusher of frustration, and may have sparked a real drive to simplify the tax system.
How would such reform look?
It could take the form of a flat tax rate on income earned—anywhere from 17 to 23 percent. Lower-income workers would be exempt up to a point, say 150 percent of the poverty level. But after that, everyone would pay the same rate.
Lawmakers would debate the wisdom of continued popular deductions, such as the ones for mortgage interest and charitable giving—and then adjust the flat rate accordingly.
Critics of the flat tax on income say it still penalizes work and productivity, as our current code does. Not as much to be sure, but it still would discourage some workers from increasing their productivity, they say.
Analysts also point out that it would be too easy to start enacting more and more deductions, and thus revert to ever-increasing complexity.
But Congress—the country—simply cannot let the threat of failure stop it from taking the first step.
Our current tax system is undermining growth and driving businesses to other shores. It is a mind-boggling morass of regulations and contradictions that befuddle the best tax experts and open doors for those who want to game the system.
If President Bush really wants to jumpstart the economy, tax reform is the best place to start.