Vol. III - Penn State Abington

2008, 60% of returns filed were completed by tax professionals for a fee, and an additional 22%
were completed using the assistance of purchased tax preparation software (Olson, 2008).
It’s not just the size of our tax code that complicates the process, it’s also the manner in
which the internal revenue system is used. The tax system is not just a tool to collect revenues
for the government; it’s also being used for the assertion of fiscal and regulatory policy. Our
income tax rules are littered with incentives, deterrents, and stimuli aimed at issues such as
spending on education, investment incentives, and tax credits for the environmentally conscious,
among others. The centralization of these political and social agendas into one single instrument
has turned our income tax system into an economic Swiss army knife for the government to use
each time it wants to incentivize, punish, or financially segregate a portion of the American
populace. This approach has overburdened the system and extended it beyond original intention.
The Federal income tax was created at the onset of the 20 th century. Prior to this the
national government did little along the lines of spending. In fact, less than a third of government
spending was at the hands of the Federal government. It was the Sixteenth amendment, in 1913,
that granted the government the right to tax income. It was implemented as a meager 1% tax for
those earning more than $3,000 a year, with an additional 6% imposed on only the very wealthy.
In total, it affected only 2% of adults (Jillson, 2008). Today all wage earners are affected, and the
delta of tax burden between income brackets has closed significantly. The creation of a system to
handle such a diverse set of income and wealth has developed a socio-political battleground and
fueled ongoing controversies over the tax regulations imposed by our government.
Tax reform proposals often identify the complexity of our tax system as the primary
motivation for reform, but these campaigns have historically taken on larger objectives than
simplifying the process imposed upon the taxpayers. They have equally proposed to tune our tax
code, steer the economy, meet widely recognized indicators of good policy, or to attain
horizontal and vertical equity (AICPA, 2005). Unfortunately, these objectives are more often
counterproductive to simplifying the act of filing a tax return, and, instead, inject even more
conditional specificity into a myriad of existing tax scenarios.
Most of the leading proposals for tax reform, whether it be a “bottom-up” overhaul of the
existing system, a “fundamental tax-reform” replacement of the entire system, or a hybrid blend
of these two (AICPA, 2005), involve rethinking much of the underlying philosophical and
political structuring of our governments tax strategy. Therefore, any such proposal will tilt the
scales in favor of one group of individuals over another, which makes these reform campaigns
difficult to champion, difficult to gain support for, and difficult to successfully accomplish.
Despite the challenges they face, the proponents of tax reform have, for decades,
continued to engage the battle in an effort to see change come about in our tax system. Examples
of such reform proposals include a number of consumption based income tax alternatives, such
as Senator Roth’s Business Transfer Tax proposal in 1985, the Armey-Shelby flat tax proposal of
the late 1990’s, and now the Freedom Flat Tax Act introduced in early 2009. In fact, in the 108 th
Congress alone, there were four separate proposals for tax reform initiatives (Schenk, 2005).
These proposals have been criticized by some for imposing an increased tax burden on the less
wealthy, and subsequently lacked the support to carry them through to implementation.
So, then, how do we go about simplifying a process that is so inherently complex but
politically sensitive The answer is to separate the systemic issues from the political issues. In
essence, don’t change the tax code; just redesign the process to be adept at handling the fluidity
of the tax code, but capable of greater efficiency with significant reduction of effort.
THE DIALECTICS ▲ 2009
www.abington.psu.edu/dialectics
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