The Politics Of Taxes

As the deadline for our taxes quickly approaches, countless articles have recently been written about our archaic tax code and the politics that shape our economy. The latest issue of Business Week somehow managed to make taxes an engaging subject. Joel Stein, in an attempt to figure out the best tax preparation method, points out the ridiculousness in having to prepare our taxes ourselves.

"I don’t resent taxes for the usual reason—that government wastes my hard-earned money. No, I resent paying taxes because if the government wants my money, it should have to do the work of figuring out how much it wants. I don’t click on a book on Amazon.com and then fill out 20 pages of forms to figure out how much it will cost me, and then keep every receipt and form in case Amazon wants to make sure I got the number right five years from now. If I had to do all of that for Amazon, I’d have an even lower chance of reading Finnegans Wake."

In fact, the tax system is so complicated that when the IRS studied 46,000 audits of taxpayers in 2006, they found that 67% of the problems were unintentional errors. Even the IRS computers have trouble navigating the system; 27% of those errors were computational errors by the IRS or tax preparer. To deal with all these errors, Congress created a Taxpayer Advocate Service, overseen nationally by Nina Olson who has tirelessly fought to help foster a more trusting relationship between taxpayers and the IRS. She points out that the wait time for half of the people who have written to the IRS is more than six weeks. Not surprisingly, the 1% get special treatment even by the IRS - they're some of the only people who actually get face-to face time with the IRS if audited. Nina is looking into the psychology behind those who do not pay taxes, using data to learn what regions, jobs, income levels, etc. are more likely to pay or not pay taxes. She strongly believes the government needs to focus on innovation within the IRS.

"The IRS budget, currently $11.8 billion, has been cut each year for the past two years, resulting in a hiring freeze. “No one is willing to fund the IRS to do imaginative thinking,” she says. “The military gets funding to develop the next new weapons system. But the IRS does not get funding to sit down and say, how could we harness the iPad? How could we harness video technology to talk to the taxpayer in their home? I mean, we don’t even e-mail or text the taxpayers. We’re so far behind.”

Finally, in today's New York Times article, A Tax Code of Politics, Not Reason, Eduardo Porter points out how the complications of our tax system can attributed to compromises between the Democratic and Republican parties. Parts of the tax code that seem to charge a lot to taxpayers are actually littered with loopholes for certain groups.

"Among the 34 nations in the Organization for Economic Cooperation and Development, only Mexico and Chile collect less in taxes. The average across the O.E.C.D. is 9 percentage points higher."

Eduardo suggests simplifying the tax code and implementing higher consumption taxes, a suggestion supported by the vast majority of economists and a strategy that has worked in prosperous countries like Denmark and Sweden.

As usual, after reading a few articles about our archaic tax system and our economic policy shaped by people with special interests, I feel informed but helpless and also furious. Why is so much of our economic policy shaped by politicians when bi-partisan economists have quantifiable data to support their policy recommendations? Would I want an insurance company standing in for my doctor to determine my care? Both parties have managed to stand together to defeat the enemies of our country because we believe we will be stronger as a nation. Why should our economic policy be any different? What good is it to protect us from outside enemies if within our own country, we're nurturing a select few through partisan economic policies?

The Nature of Greed

We all strive for the American dream. In America, it is understood that one of our basic rights is to freely achieve success and reap the rewards of our labor. We often focus on the actual labor, education, and drive that led to, for instance, a banker's success. But along the way, this banker received government assistance or was directly effected by those who did. Perhaps the grandparent that inspired him and challenged him was on medicare. Or maybe the teachers of his public grade school were all happy members of the middle class, actually able to live a decent lifestyle that enabled them to be great teachers.At what point did we, as Americans decide that it's every man for themselves? Let's be honest, there is no proof that the trickle down theory actually works. Actually, it's fairly evident that it doesn't work given the current state of our economy. Lately I've felt so helpless and angry about the current state of our government that I contacted a friend who works in politics, asking him what to do. But unfortunately, even he was at a loss as to what the average American citizen could do. He told me that

The biggest issues of our time are the wealth gaps in the U.S. (the distance in wealth between the top 1% and the bottom, or even the middle 50% of income earners) and the explosive costs of health care, college, retirement and child care. While all of these things have gone up exponentially, middle class incomes have essentially been stagnant since 1978. The only way to deal with this is through taxation and re-distribution of some of the wealthiest American's money to provide services for the middle class, let alone the poor. Unfortunately, our elected leaders of both Parties appear unwilling to come together to work on these issues.

American corporations right now are collectively sitting on $1 trillion in liquid cash but aren't willing to spend it on hiring because of two factors: [lack of consumer demand and technology taking away jobs from humans]

In other words, the wealthy are sitting on a disproportionate, huge pile of wealth, that they are not necessarily spending in America, in ways that are NOT trickling down - while the middle class and poor are left to uncomfortably hang. Our attempts to reprimand this guy ---> and tell him to lose some weight failed. So now we need a very strong figure to swoop in and push down on the seesaw from the other end, putting the selfish bully in their place. If not, who knows what will happen? Will the guy hanging suddenly fight back with more anger and violence than the bully could have ever dreamed of? My friend pointed out that throughout history,

when wealth has stratified to the top the way it is now and unemployment has been as widespread as it currently is, there have usually been conflicts of historic proportions that have resolved it. World War II, Nazis, the fall of the Roman Empire, etc. come to mind.

So countless articles have been written about how history may repeat itself. Are we going to sit by and watch it happen? Is it already happening with the London riots? Will we head into yet another war? Or will we show that we've learned from our mistakes and have evolved beyond greed and bipartisan politics to actually care about the health of our entire nation, recognizing that we're all connected?