Federal income tax needs serious makeover

Benjamin Franklin once wrote, “In this world nothing can be said to be certain, except death and taxes.”

By and large, most people consider this a very appropriate observation, and not just as commentary on uncertainty in life. By linking death with taxation, Franklin guaranteed that this little one-liner would be remembered throughout the ages.

There’s nothing people hate more than losing their hard-earned money. I know that every time I rip open a paycheck and see how much FICA has stolen from me, a little part of my soul dies.

Despite the fact that everyone complains about it, however, income tax is a good thing. Initially railed against as a radical act of socialism, income tax was recognized as a largely beneficial program, though not without fault.

The 16th Amendment to the Constitution, which gave Congress the power to “lay and collect taxes on incomes,” was passed in 1913. Since that time, personal and corporate income taxes have become the federal government’s major source of revenue.

On account of this amendment, the U.S. economy improved. With the federal government no longer relying on tariffs as a source of revenue, free trade flourished and has had a beneficial impact on the U.S. economy because it increases competition between producers. Consumers benefit while prices are kept low.

Furthermore, through the manipulation of tax rates, the federal government is able to promote economic stability. Fiscal policies enacted by the government since Franklin Roosevelt’s administration have led to significantly calmer economic waters. Though periods of inflation and recession still occur, they are not nearly as dramatic as they once were.

This is not to say that the income tax system is perfect. Like all things created by government, there are some flaws associated with the income tax. These flaws have not disappeared since 1913-they have intensified.

One example is Utah’s over-burdened public school system. Every year a fuss is made about the lack of funding for public schools coupled with an increase in enrollment. Naturally, this leads to problems in the quality of education students receive.

The most important source of revenue for education in Utah is income tax. The only problem with this is that taxpayers get an exemption for each minor child in their households. Therefore, a family could hypothetically enroll eight children in Utah’s public school system and receive eight exemptions. At the same time, a childless couple pays the cost of sending those children from kindergarten through 12th grade.

No wonder debates over public-school funding can break out in fist fights. Clearly, the problem presented here isn’t going to be resolved in a simple PTA meeting.

There are also significant problems with receiving income tax from corporate America. According to U.S. News and World Report, more than 60 percent of American companies did not pay income tax between 1996 and 2000. That amounts to $2.5 trillion of gross income that went completely untaxed.

Through the use of various loopholes, corporate America is robbing the middle class. Last year, corporate tax receipts accounted for a mere 7.4 percent of overall federal receipts, the lowest in more than 20 years.

This is not the result of a poor economy. This is the result of a deliberate manipulation by corporations to avoid paying their fair share of taxes.

Compounding the problem is the fact that the IRS now has roughly half the law enforcement resources it did back in 1988. No wonder the audit rate for the largest corporations fell nearly 50 percent in the last decade. Fewer audits mean fewer crooks are getting caught. As columnist Mortimer Zuckerman points out, “The sobering reality is that dodging taxes…is becoming deeply rooted in America’s business culture.”

Despite all the good it has done, serious problems remain with income tax. More than 90 years after its inception, the income tax system needs to be drastically overhauled, both at the state and federal levels. At a time when the federal deficit is topping the trillion-dollar mark, we need to start seriously thinking about these and other problems associated with income tax.

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