The American tax code is one of the most complex and byzantine bureaucratic structures in the federal government. The tax code currently stands at an eye-popping 9,000 pages and is often considered the most complex system of its kind in the world. To even remotely understand the inner workings of the nation’s tax system requires years of education and training –– making it all but impossible for the average American to comprehend how their taxes are calculated and spent. The sheer size of the nation’s tax code is a hindrance to both greater financial equality and economic prosperity.
In terms of income taxes, the nation operates on a “progressive tax” system –– the more money you make, the higher the percentage of your income goes to Uncle Sam. Certainly, the vast majority of the Western tax systems operate under this progressive system, as it is the bedrock taxation policy of most of Europe, Oceania and North America. The primary purpose of this system is to use funds from higher-income individuals to fund social welfare programs, social services and public goods.
Unfortunately, the nation’s tax system has fallen short of its “progressive” goals. First and foremost, the federal tax code includes a massively long list of exemptions and loopholes that are often exploited by clever tax attorneys –– exploitations that wealthier individuals use to offset higher tax rates. It is because of these exemptions and loopholes that the public constantly hears stories of CEOs paying the same tax rate as their secretaries.
Beyond income taxes, the tax code also has very real and tangible impact on American businesses. Small- and medium-sized businesses often find it difficult to employ the army of lawyers necessary to successfully navigate the tax code and maximize the firm’s profit. As a result, profit maximization is often only feasible for the largest of companies. This creates an exceptionally unfair and imbalanced economic system in which only the most powerful companies can thrive.
Another example of the unfair impact of the federal tax code on small- and medium-sized businesses can be seen through the estate tax. Commonly known as the “death tax,” the estate tax functions as an inheritance tariff. The philosophy of the tax is easy to understand: America is a nation of self-made individuals, and a tax on inherited wealth helps to prevent the development of a permanent American aristocracy. However, inheritance is not a phenomenon solely sequestered to the wealthy –– in fact, large numbers of low-income and middle class Americans benefit heavily from inherited wealth and property. Family farmers, for example, often pass their farms through the generations via inheritance. However, the estate tax often functions as an extreme economic burden on inherited family farms –– a burden that frequently forces these farms to close their doors.
Clearly the list of problems with our nation’s tax code is long. To fix this problem, we must first change the way we discuss taxation. For too long both political parties have debated and discussed whether the tax rate is too high or too low –– concerns that are, quite frankly, not nearly as important as the construction of the tax code itself.
The second step must involve a dramatic overhaul of the vast number of exemptions, deductions and loopholes that plague the code. Certainly, there are a number of useful and productive exemptions and deductions, such as the charitable contribution deduction. However, these structures often benefit wealthier Americans and large companies in a greater capacity than the rest of the nation. Furthermore, the amount of fraud and abuse in the code’s loopholes, deductions and exemptions is striking. For example, a recent estimate showed that 29 percent of Earned Income Tax Credit payments are fraudulent –– a striking number considering millions of Americans benefit from the tax credit.
Another change must involve a reduction in the sheer size of the tax code. Nine thousand pages is impossible for one individual to sift through –– and thus privilege of understanding the code belongs to an elite few with intensive legal training. All Americans should be able to have a basic understanding of the nation’s tax operations –– to accomplish this, we must reduce the size of the code.
I firmly believe that if we are to achieve a greater sense of economic fairness in this nation, we must first make significant changes to our tax code. The current system privileges an elite few, baffles the majority of the nation and even harms large sectors of the nation’s business community.
Michael Glanzel is a junior in the College of Arts and Sciences. He can be reached at [email protected]. Cornell Shrugged appears alternate Thursdays this semester.