Ways and Means Chair, Treasury Secretary Both Confused by Tax Laws

The Destructive Income Tax Code Hurts Almost Everyone

Both the Chairman of the House Congressional Committee that writes all federal tax laws and the man who will be responsible for our tax system as the Secretary of the Treasury say they failed to pay owed taxes because they misunderstood our tax laws. If we take them both as honest, we are left with only one inescapable conclusion: they are not alone in their confusion over our tax laws. Each represents another indictment of the system.

House Ways and Means Chairman Charles Rangel and Treasury Secretary nominee Timothy Geitner have now joined the ranks of millions of Americans and the IRS itself who are befuddled at the almost indecipherable 67,500 pages of tax rules that accompany the US income tax system. The tax code is so complicated that Americans will pay an astounding--and utterly wasted--$300 billion this year in tax preparation costs.

The amount we spend just to obey—or game-- our tax laws is about $150 billion more than the entire cost of the taxpayer stimulus checks mailed out last year. Our tax system has become an expensive and confusing patchwork quilt of thousands of political favors, ambiguous rules that invite all manner of tax avoidance strategies and ham-handed Congressional attempts to manipulate citizen behavior.

Under the income tax code, debt is more favorable than wealth, married people pay more than singles and business decisions are made on the basis of tax consequences instead of sound practices and growth. The alternative minimum tax, once designed to squeeze taxes from a few hundred very wealthy people who figured out how to legally underpay millions of dollars, now threatens to add more than $2,000 a year to the tax bills of middle class Americans because of an error in the way the law was originally written and because the government now counts on that revenue.

Even the IRS cannot guarantee that the advice it gives confused taxpayers is sound.

Even worse, the income tax system gives foreign producers a price advantage over domestic producers selling in US markets, the payroll tax that tripped up Mr. Geitner is highly regressive and most of what we pay the government either in taxes “embedded” in the price of goods and services or withheld from our paychecks, is hidden from plain sight. It’s a wonderful system for those tax lobbyists who get the majority of all lobby dollars spent in Washington in any given year and for Members of Congress who love the power but a terrible system for taxpayers and destructive to the nation’s economy.

Outside the beltway, people from across the political spectrum believe that there is a better way to collect taxes that solves many of the problems facing the nation. The FairTax proposal to shift to a national retail sales tax and eliminate withholding, the destructive payroll tax and all the gimmicks commonly used by the fortunate few continues to resonate in hometown America, even if not in the halls of Congress.

Based on $22 million of peer-reviewed research, we FairTax proponents believe that eliminating income tax withholding and payroll taxes will allow millions of distressed homeowners the ability to satisfy mortgage obligations. We like the idea of a universal monthly prebate to cover the tax on necessities and which eliminates federal taxes on the poor. And a simple, transparent tax that is paid at the cash register without exception by every consumer, including illegal immigrants on one end of the spectrum and billionaires on the other, seems far fairer than a system that invites manipulation by “insiders” who can afford a tax lawyer, a team of tax lobbyists or a special relationship with a Member of Congress.

Over the years, the FairTax campaign has become as much about whether Americans, who almost universally despise the income tax system, can actually trump the self-interests of those who profit from the income tax code. As the nation’s economy teeters, now is the time for public policy to change to actually benefit the public. As good as the income tax system is for those in Washington, it is just that bad for the nation and hundreds of millions of taxpayers.

It is this corruption of the public will and true representation that is our central challenge in enacting the FairTax.