Have you ever wondered why the tax code is a Byzantine mess that requires 72,000 pages of law and regulation?
Hopefully you don’t ponder such dark and dreary thoughts, but the answer is that politicians and lobbyists have spent nearly 100 years creating all sorts of loopholes, shelters, deductions, preferences, exemptions, credits, and shelters.
Beginning on that dark day in 1913 when the income tax began to plague America.
Politicians love this process since they get to control our behavior and (even better) raise campaign cash from interest groups that benefit from industrial policy in the tax code.
The Washington Post has put together a revealing chart showing the steady growth of tax breaks – just in the past 37 years. If you click on the website, it has some interactive features, but this pictures of ever-rising distortions is all you really need to know.
But you should have two warning signs blaring in your head as you peruse this material.
1. You can’t properly define a loophole unless you first properly define an ideal tax system. This sounds like wonky talk for tax geeks, but it’s critically important. There’s a big debate featuring (mostly) tax lawyers on one side who think the right “tax base” includes pervasive double taxation of saving and investment. And the other side is comprised of (mostly) tax economists who think that a proper “tax base” has no double taxation.
Not surprisingly, the Washington Post, like much of the Washington crowd, accepts the wrong definition of a loophole. I explained this issue more thoroughly in this post, for those who want to get in the weeds. But here’s one example. If you put money in an IRA, that means you only get taxed on that income one time. The tax lawyers think that’s a loophole and they want you to be taxed at least two times, once when you first earn the money and again when you take the money out of the account. The tax economists point out that the government should only get one bite at the apple, meaning that the income can be taxed before it goes into the account (a Roth-style IRA) or when it comes out of the account (a traditional IRA). But not both.
2. Assuming we have the proper definition of a loophole, we presumably agree that these distortions are both corrupt and inefficient. And we’d like to clean up the tax code by eliminating these provisions. But getting rid of loopholes – assuming that’s all that happens – gives the government more money. That’s what’s motivating folks on the left. Going after loopholes (including things that aren’t loopholes, as explained above) is largely a tax-raising exercise.
That’s why, as I explained in an earlier post, any loophole-closing should be accompanied by an equal amount of tax-rate cutting. More specifically, every dollar generated by reducing tax breaks should be used to finance lower tax rates. That’s the underlying principle of tax reform. And if you get rid of all loopholes, eliminate all double taxation, and lower tax rates as much as possible, you wind up with a simple and fair flat tax.
This video explains how the system works.
But don’t hold your breath waiting for this to happen. Politicians react to the flat tax like vampires react to holy water.
[…] simultaneously is filled with class-warfare provisions that punish success while also containing thousands of special tax breaks that benefit the well-heeled friends of […]
[…] simultaneously is filled with class-warfare provisions that punish success while also containing thousands of special tax breaks that benefit the well-heeled friends of […]
[…] simultaneously is filled with class-warfare provisions that punish success while also containing thousands of special tax breaks that benefit the well-heeled friends of […]
[…] my fantasy world, we would throw all those forms in the trash and replace today’s convoluted tax system with a simple and fair flat […]
[…] But let’s also remember what Steve Forbes said in the video about the current system being corrupt. […]
[…] But let’s also remember what Steve Forbes said in the video about the current system being corrupt. […]
[…] is largely the fault of politicians, who have spent the past 108 years creating a punitive and corrupt set of tax […]
[…] is largely the fault of politicians, who have spent the past 108 years creating a punitive and corrupt set of tax […]
[…] bottom line is that a complicated and convoluted tax code is great for lobbyists and a boon for […]
[…] bottom line is that a complicated and convoluted tax code is great for lobbyists and a boon for […]
[…] is largely the fault of politicians, who have spent the past 108 years creating a punitive and corrupt set of tax […]
[…] is largely the fault of politicians, who have spent the past 108 years creating a punitive and corrupt set of tax […]
[…] is largely the fault of politicians, who have spent the past 108 years creating a punitive and corrupt set of tax […]
[…] is largely the fault of politicians, who have spent the past 108 years creating a punitive and corrupt set of tax […]
[…] is largely the fault of politicians, who have spent the past 108 years creating a punitive and corrupt set of tax […]
[…] is largely the fault of politicians, who have spent the past 108 years creating a punitive and corrupt set of tax […]
[…] is largely the fault of politicians, who have spent the past 108 years creating a punitive and corrupt set of tax […]
[…] is largely the fault of politicians, who have spent the past 108 years creating a punitive and corrupt set of tax […]
[…] is largely the fault of politicians, who have spent the past 108 years creating a punitive and corrupt set of tax […]
[…] The number of special tax breaks. […]
[…] is largely the fault of politicians, who have spent the past 108 years creating a punitive and corrupt set of tax […]
[…] is largely the fault of politicians, who have spent the past 108 years creating a punitive and corrupt set of tax […]
[…] is largely the fault of politicians, who have spent the past 108 years creating a punitive and corrupt set of tax […]
[…] is largely the fault of politicians, who have spent the past 108 years creating a punitive and corrupt set of tax […]
[…] The number of special tax breaks. […]
[…] The number of special tax breaks. […]
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[…] is a horribly corrupt city. The tax code is riddled with special favors for politically powerful interest groups. The budget is filled with handouts and subsidies for […]
[…] I also like the flat tax because it gets rid of all deductions, credits, exemptions, preferences, exclusions, and other distortions. And a loophole-free tax code would be a great way of reducing Washington corruption and promoting simplicity. […]
[…] the number of sections in the tax law, which has skyrocketed in the past four […]
[…] the number of sections in the tax law, which has skyrocketed in the past four […]
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[…] of this passage is correct, and I’ve specifically pointed out that the tax code is mind-numbingly complex and that politicians deserve an overwhelming share of the blame for this sorry state of […]
[…] of this passage is correct, and I’ve specifically pointed out that the tax code is mind-numbingly complex and that politicians deserve an overwhelming share of the blame for this sorry state of […]
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[…] Replace the corrupt and punitive internal revenue code with a simple and fair flat tax that raises necessary revenue in the least-destructive and […]
[…] unquestionably true, as shown by data on the number of pages in the tax code, number of provisions in the tax law, and even by the number of pages in the instruction booklet for the IRS 1040 […]
[…] unquestionably true, as shown by data on the number of pages in the tax code, number of provisions in the tax law, and even by the number of pages in the instruction booklet for the IRS 1040 […]
[…] we blame politicians for our corrupt, loophole-ridden, abusive tax […]
[…] talking about the constant legislative tinkering and the 74,000 pages of Byzantine complexity that has been created in the 100 years since the […]
[…] The number of special tax breaks. […]
[…] And the anxiety of taxpayers who can’t figure out how to comply with an ever-changing tax code? […]
[…] The fact that Obamacare is the law today does not mean it must be enshrined forever. A lot of folks in the media are regurgitating this White House talking point. I pointed out that the Continuing Resolution also is the law, but maybe I should have pointed out that politicians change the tax code all the time. […]
[…] think this image was a damning indictment of the internal revenue code. Or here’s another chart showing how the tax system has become more convoluted over […]
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[…] think this image was a damning indictment of the internal revenue code. Or here’s another chart showing how the tax system has become more convoluted over […]
[…] other indicators of nightmarish complexity, such as the number of pages in the tax code, the number of special tax provisions, or the number of pages in the 1040 instruction […]
[…] we blame politicians for our corrupt, loophole-ridden, abusive tax […]
[…] we blame politicians for our corrupt, loophole-ridden, abusive tax […]
[…] talking about the constant legislative tinkering and the 74,000 pages of Byzantine complexity that has been created in the 100 years since the […]
[…] talking about the constant legislative tinkering and the 74,000 pages of Byzantine complexity that has been created in the 100 years since the […]
[…] The number of special tax breaks. […]
[…] The number of special tax breaks. […]
[…] includes only the big itemized deductions. There are dozens of other special tax preferences, as shown in this depressing image, and you can be sure that rich people are far more likely to have the lawyers, lobbyists, and […]
[…] complained about the number of pages in the tax code, the number of provisions in the tax code, and I’ve even groused about the rising number of pages in the instruction manual for the […]
[…] The number of special tax breaks. […]
[…] just look at these three images – here, here, and here – and you’ll find startling evidence that politicians make the tax system worse with […]
[…] number two fiscal problem is a punitive and corrupt tax code (as captured by images here, here, and here). A big part of the solution is a simple and fair flat […]
[…] this image was a damning indictment of the internal revenue code. Or here’s another chart showing how the tax system has become more convoluted over […]
[…] good analogy is that I don’t like tax loopholes, but I like the fact that they enable people to keep more of the money they earn. The ideal system, […]
[…] good analogy is that I don’t like tax loopholes, but I like the fact that they enable people to keep more of the money they earn. The ideal system, […]
[…] includes only the big itemized deductions. There are dozens of other special tax preferences, as shown in this depressing image, and you can be sure that rich people are far more likely to have the lawyers, lobbyists, and […]
[…] already shown depressing charts on the number of pages in the tax code and the number of special breaks in the tax law. To make matters worse, not even the IRS understands how to interpret the law. According to a […]
[…] includes only the big itemized deductions. There are dozens of other special tax preferences, as shown in this depressing image, and you can be sure that rich people are far more likely to have the lawyers, lobbyists, and […]
[…] Carr is good tax policy (protecting against double taxation, for instance) or bad policy (such as a loophole that creates favoritism for a specific behavior), but that’s not the point of this […]
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[…] Does the plan get rid of deductions, preferences, exemptions, preferences, deductions, loopholes, credits, shelters, and othe… that distort economic […]
[…] Does the plan get rid of deductions, preferences, exemptions, preferences, deductions, loopholes, credits, shelters, and othe… that distort economic […]
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