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A Pompous Lorax and a Hidden Surtax
Who were the Hollywood suits who thought a furry orange troll with Danny DeVito’s voice lecturing people on trees was a winning combination for a family movie? I suppose I’m not really one to talk, as I was suckered by my kids into spending six bucks renting The Lorax last weekend. Having been reintroduced to Dr. Seuss’ works since having children, I have come to the conclusion that his approach primarily consists of substituting lame rhyming for decent writing. I know, look in the mirror. How hard is it to rhyme when one is no longer confined to having to use actual words?
The passage of another mythical hairy fellow through my house over the weekend – no, not my wife’s uncle; the little lagomorpha who leaves baskets of candy for the kids — reminded me that America’s next great holiday is just around the corner: Tax Day. As I followed my tax ritual of dumping several dozen forms on my accountant a couple weeks ago, I started thinking about one of the darker sides of the advent of computing. Would it be possible to have such a monstrosity of a tax code if not for modern computing power? If, with pen and paper, people still had to fill out a 1040 line by line subtracting $1000 times the number of squirrels residing in their backyard from line 218a to determine their taxable income, would they still put up with all of it? I tend to doubt it. In retrospect, one of the major differences between now and 30 years ago that made the Tax Reform Act of 1986 possible is the fact that a Tandy 1000 did not come preloaded with TurboTax.
Another less obvious drain caused by our byzantine tax system — one I think about when I meet one of the many tax attorneys, tax accountants, and other tax professionals in our society — is all the wasted brain power the system consumes. My accountant is a smart guy and if he were not occupied with filling out IRS form 8962 I’d wager he would be able to contribute to society in many fruitful ways. To see the magnitude of the issue, just look at two organizations that focus on managing taxes: The IRS has north of 90,000 workers and H&R Block has about 80,000 employees. These two tax-related entities alone represent 170,000 working persons. How much better off would we be if the talents of these individuals could be applied to something more productive than managing the income tax?
A simple thought experiment illustrates the possibilities: what if these 170,000 people were working in a field that could benefit the economy more? We’ll go with, um — I don’t know — ditch-digging. If each of these 170,000 workers could clear an average of 10 feet of earth a day they could complete 3,000 miles of digging in just 10 days: a ditch from sea to shining sea.
Would America benefit from such a herculean trench? I have no idea. But with so many bright people dedicating their careers to the tax system, this simple illustration helps one to imagine the possibilities if the legion of tax workers’ talents were applied differently. How many more versions of Angry Birds could be written if programmers were not updating tax software? How many more frozen yogurt stands would grace our downtowns if dessert-loving entrepreneurial accountants were not working on tax forms? How many more teen heartthrob pop music stars would there be if musically gifted tax attorneys had taken a different career path in life? We will never know.
Happy tax season!
Published in General
I agree with your general point. Some people have unrealistic expectations, though, when they say that if we had a flat tax you wouldn’t need an IRS anymore. Even if you completely eliminated the federal income tax and replaced it with a sales tax (my favorite tax reform idea) you still need an agency for the retail businesses to mail the checks to. If you had absolutely no compliance checks a lot of businesses wouldn’t even send the checks in at all, so you would still need some bureaucracy. But it would be much, much smaller.
At least until the politicians decided they needed to tweak the tax code again to make it more fair.
Randy – thanks, I’m glad I seem to have a point. You’re right, no matter what, as long as there is a tax, there would have to be some sort of enforcement mechanism. I agree that a consumption tax would likely be the least harmful with the least waste. My fear is we seem to be going in the other direction with a VAT, which will only make things more complicated with even more bureaucrats to enforce it.
The VAT is the tool of the devil. There are only two justifications for one.
1. You hate businesses and want to make their lives more difficult.
2. You want to raise a lot of money but don’t want to pass an honest sales tax because then the consumers will be angry at the government for taxing them more. The hope with a VAT is that most people will be too stupid to realize that everything costs more because of the hidden layers of taxes and those greedy capitalist businesses will get the blame.
It’s really a 2-for-1 if you’re a socialist. It’s like when they mandate that health insurance companies cover different conditions that weren’t mandated before. Moronic voters say “Yay for Senator Franken, he made those companies cover my Gruber Syndrome treatments!” Then the rates inevitably go up, and the consumers vent their hatred at the enemies of the state, profit-seeking insurance companies.
On an unrelated topic, does anybody else ever say to themselves “I’m just going to pop into Ricochet for 15 minutes before going to bed” and wonder where the last 90 minutes went? On an almost nightly basis?
For every tax a citizen needs to know it exists and a bureaucrat has to check them on it.
For every regulation a citizen needs to know it exists and a bureaucrat has to check them on it.
For every tax credit… you get the idea.
Your vision of 170,000 tax accountants freed for the digging of a transcontinental ditch prompts a few random, morning thoughts:
In the 1990s, as I recall, there was general agreement that, with the end of the Cold War, we no longer needed the SeaWolf submarine. Unfortunately, the company that built the SeaWolf was the major employer in the city of Groton, Connecticut. An uproar ensued—skilled workers who had grown accustomed to a middle-class lifestyle were going to lose their jobs. Businesses in the Groton area that depended upon those workers spending their hard- if unnecessarily-earned cash would take a big hit as well. As far as I know, the plant in Groton stayed open—a new class of submarines (Virginia?) was commissioned. Whether these serve a purpose in an age of asymmetrical warfare, other than to provide the citizens of Groton with a decent income, I couldn’t say. But I did wonder, at the time, whether paying people to build a weapons system we don’t actually need isn’t a form of (expensive) welfare?
Or at least a sort of WPA project—during the WPA years, employment was provided for thousands in building what remain very attractive bridges and parkways, public artworks and other amenities still enjoyed by American citizens.
Ah, but ours is now primarily an information and service economy—I’ve heard that divorce generates lots of jobs in these sectors—for attorneys, real estate agents, child psychologists, dating websites—but also for the makers of cars, appliances, and all the other goods that have to be duplicated when one household becomes two households. And isn’t smoking supposed to result in a net gain for society in general, since smokers die young and thus don’t draw as much social security from the system as those healthy octogenarians?
Kate B – you’re right, it’s funny how people seem to think if a job is made obsolete the talents of the worker are lost and he/she will be perpetually unemployed. Reminds me a bit of how Keynesians think rebuilding after a flood or something helps the economy. It may help construction workers but people would have invested or spent the money on other things that they used for repairs
Main feed…of course.
VC – we don’t all have your charms and talents where every post gets 100 comments :) some of us have to hope that a picture of a cute critter from a children’s story will get our post on the main feed :)
In my defense, my last real post only had a paltry 75 comments.
Your ability to link cartoons to the serious economic issues that plague our nation is nothing short of a gift.
How often have you read or heard a story about trouble collecting sales taxes? Sales tax fraud would probably be more common if a national sales tax supplanted the national income tax. But compliance enforcement would be simpler by orders of magnitude because any 7th grader could understand the rules and do the math. With a simple sales tax, the IRS could be very small indeed.
But I agree with you that politicians on both sides of the aisle would prefer a more complex tax system that they can tweak, complicate, and buy votes with. May they rot in DC.
When we were first married, my husband owned a small business, a garden center. We had a wonderful accountant, Jim, who was a really good friend. And Jim knew well how my husband felt about taxes.
One year Jim called me. “Hey, how about if this year I just drive by the shop and throw the tax return at the door?”
Not an April 15th goes by that I don’t think of Jim.
The first requirement your accountant should meet is to have a sense of humor.
The income tax system can be saved if we just adopt a couple of principles:
1. Income should only be taxed once.
2. Everyone with a given level of income should pay the same rate.
If we went through the tax code with those two pricipals in mind, we could throw out most of it, and our returns would be one-page propositions.
I can’t think of ever hearing about a business that didn’t send in their sales tax, but I’m sure there are cases where it happens. I’m not thinking of big companies like JC Pennies or Walmart, but I can picture some small companies being tempted if they knew there was zero chance of ever being audited.
Several years ago in Fargo, ND there was a company that was withholding Social Security money from employees’ paychecks, but not sending the money in to the government. But yes, the IRS would be much, much smaller and compliance would be much higher, I think.
With income tax, if someone has a job where they frequently get paid in cash (think waitresses, taxi drivers, people who get a lot of tips) it’s very easy to just under-report how much you take in. It’s much harder for someone to convince the clerk at Sears to sell you a refrigerator or lawn mower without sales tax.
Where do you rent movies from that costs six dollars?!
Also, nice post.
Mr. Charlotte is a consultant for various agencies within the Department of Defense (I tell him he’s part of the problem, not part of the solution :-). I’ve had similar thoughts about his type of work as every government-issued Request for Proposal generates a frenzy of responses from private companies fighting to get the contracts. When you consider that most of the work being contracted for shouldn’t be the responsibility of the government in the first place, it’s really shocking how much human capital and mental bandwidth this process sucks up. What if all of these people were actually doing something, you know, productive?
It’s terribly depressing.
Charlotte – Comcast on demand, I know, I’m a sucker. I think the HD version was $5.99, if memory serves
I’m sure your kids appreciate every penny you spend on them. Hee hee.