Happy Tax Hangover Day, America! Did we have fun filling out our paperwork?


Without a doubt, the federal tax code is virtually impossible for the average human (or, for that matter, even the IRS commissioner) to understand. If you were to purchase all 20 sections of Title 26 from the Government Publishing Office (effective for fiscal year 2010), you’d get 12,627 pages in the mail!


Compliance with this Byzantine system is tough – and a tremendous drain on resources. The Laffer Center for Supply-Side Economics estimates that U.S. taxpayers pay $431 billion annually to comply with and administer the income tax system – a staggering 30% of total taxes collected! And if that’s not bad enough, that figure doesn’t include the effects of Americans’ distorted economic behavior (as they try to minimize their tax burden). 


Would Americans’ quality of life be better if individuals were able to keep even a fraction of their time and money spent on filing (Laffer estimates 6.1 billion hours of time spent on filing, equal to about $378 billion, and approximately $31.5 billion spent on tax software or to tax professionals)? Absolutely. And even though the IRS’ annual administrative costs of $12.4 billion are just a drop in the bucket compared to 2011’s projected deficit of $1.6 trillion, trimming a bit off that amount would still be a nice gesture… 


But what’s a country to do? Reform is needed – but how?


My two cents: I find this Center for Freedom & Prosperity video about the flat tax, narrated by Dan Mitchell, quite compelling. With a flat tax, the tax code would be simplified (many proposals would make it easy enough to file on a postcard), reducing both compliance costs and the amount of money required to administer the system.


FreedomWorks’ Matt Kibbe puts it simply: “Let’s scrap the entire tax system and replace it with one that is simple, low and fairer. The best and most practical solution is to implement a flat tax.”