Friday, April 15, 2011

Tax Day!

"There is no worse tyranny than to force a man to pay for what he does not want merely because you think it would be good for him."
-- Robert A. Heinlein
Jacob Sullum at Reason.com has a thought provoking article entitled, Let He Who Is Without Error Conduct the First Audit.
I came across a 2010 report (PDF) from the National Taxpayers Union that summarizes various experiments showing that professional tax preparers disagree about the proper way to file returns for hypothetical families. Worse, the people conducting the experiments—including the Government Accountability Office, which consulted with experts at the Joint Committee on Taxation—could not definitively say who was right and who was wrong.
In a 1998 study by Money magazine:
All 46 tested tax professionals got a different answer, and none got it right. The professional who directed the test admitted "that his computation is not the only possible correct answer" since the tax law is so murky. The tax computed by these professionals "ranged from $34,240 to $68,912." The closest answer still erred in the government's favor by $610.
In his Reason column, Jacob Sullum notes:
The federal tax code, which in 1913 could be published as a single 400-page book, today occupies some 72,000 pages. In the last 10 years alone, [...] "there have been approximately 4,428 changes to the tax code." The instructions for filling out Form 1040, which took up two pages 75 years ago, are 179 pages long this year.
This is a serious problem because the average taxpayer "can be jailed, or fined, or otherwise punished if you get an answer that is deemed 'wrong,'" according to Instapundit. How can we punish amateurs for tax mistakes when the professionals can not agree what is correct?

Bottom Line

Why is the tax code so complicated? Sullum offers this insight,
politicians [think that they] can improve our decisions by using tax preferences to encourage officially approved behavior, whether it's giving to charity, going to college, adopting children, investing in research, converting corn into fuel, or buying a house, a hybrid car, or a health insurance policy. It's bad enough that the government forcibly extracts a share of our income; it should not presume to direct the spending of the rest.

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