The Simplified Tax Code Idea

As part of the debt ceiling debate, one keeps hearing about the idea of a simplified tax code. Just what is this and why would a streamlined tax code help with the national debt problem? 

As I grow older, I’ve learned that much of what is supposed to be a sure thing is anything but. In fact, one can argue a lot of what we’ve been told is less than accurate and might as well start with the letter “b” and end with “t” and I am not talking about “bullet”! There is one rule, however, that seems to play out pretty accurately. It is the rule of KISS. This, of course, stands for Keep It Simple, Stupid. When the rule is applied, it seems to work in nearly every situation. 

The tax code in the United States definitely does not comply with the rule of KISS. It is an unmitigated disaster that is so complex that most people don’t know whether they are overpaying obscenely or committing tax fraud half the time. It has created a world where GE can make $14 billion in profits and pay no income tax while you and I make a fraction of that amount and pay what seems like is way too much of our hard earned money. 

This tax anomaly is readily apparent to everyone and nobody really tries to deny it. The question is how to fix it. There are some seriously powerful lobbyists out there who will fight tooth and nail to stop it from happening. Most people thought it would never be possible, but the Great Recession and debt ceiling wars may have created an opportunity to do it. 

The idea being bandied about as a way to raise revenue is to overhaul the tax code. The tax rate would be dropped dramatically in all areas. Before you get too excited, it pays to hear the rest of it. Most of the write-offs and tax credits would also be terminated. This means things like the business mileage deduction, business means, the home mortgage interest deduction and, well, pick your favorite tax benefit would evaporate. 

The end result would be that we would pay a lower percentage of our income as tax, but lose most of our ability to lower the amount that would be taxed. This would be a boon for a salaried person. It would be a brutal change for a small business owner. As with most tax proposals, there would be clear winners and losers, but the end result would be more money for our elephantine government and politicians. 

Somehow, I doubt that is a good thing.