dirty
EOG Master
November 28, 2005
The Income Tax and How it Undermines the U.S. Economy
Chris Liakos
On one day every year, more money is spent by Americans than has been spent on the whole Iraq War. This day is not Christmas or Valentine's Day, or any such fun day as that. This day is April 15, the deadline for Income Tax filing. In case you missed it, filing your Federal Income Taxes is not nearly as fun as opening presents on Christmas morning. It's not even close. Not only is it not fun, but Federal Income Taxes are a huge drain on the American economy, to the tune of $500 billion in 2002, according to the Tax Foundation (Boortz 49).
How did this figure come about? An estimated 5.8 billion hours spent by individuals, businesses, and non-profit organizations in compliance with our monstrosity of a tax code cost Americans approximately $194 billion in 2002 (Boortz 43). Established by the 16th Amendment on February 12, 1913, and having gone through approximately 35 years of reform, the current IRS tax code exceeds 54,000 pages and contains some 2.8 million words (Americans for Fair Taxation). Individuals and businesses usually have to hire professionals called CPAs to interpret and correctly file their taxes.
Not only are these explicit costs crippling, but how much worse are the implicit costs, or in other words, the opportunity costs? Think about it this way: those 5.8 billion hours are not being spent producing anything. As Neal Boortz correctly puts it in his new book, The FairTax Book, that figure is equivalent to the lifespan of 8,700 Americans (Boortz 43). That's almost three times as many people as died on September 11, 2001, every year! Boortz goes further with this analogy:
"What kind of workforce would it take to cover those 5.8 billion hours? If you figure a standard workweek - eight hours a day, five days a week, a few weeks every year off for vacation - it adds up to a workforce of more than 2.77 million people. That's more than the auto industry, the computer manufacturing industry, the aircraft manufacturing industry, talk radio, and the steel industry in the United States combined. (43-4)"
The current tax code continues to cost businesses money in this way: businesses are forced to make tax-decisions instead of economic decisions. That means, instead of making corporate decisions based on what is best for the company's profit, the corporations make decisions based on the lowest-cost tax implications. This hurts businesses in two ways: First, businesses lose potential earnings because the IRS tax code would penalize them for certain decisions. Second, as more of an opportunity cost, business executives actually have to spend time and money on figuring out the tax implications of their decisions. So, not only do the decisions they are forced to make hurt them, but they have to take the time to make those decisions. Corporations could be investing money back into their company, thus growing it and providing more jobs, but instead are having to waste time avoiding high taxes. How much money is lost here?
It is probably impossible to calculate the exact value of all of this time wasted by every American who files Federal Income Taxes, but the Tax Foundation has estimated that, opportunity costs added with the $194 billion compliance cost mentioned earlier, equals a total cost for America exceeding $500 billion. But wait, there's more.
What about embedded taxes? Don't think for a minute that businesses manage the whole tax burden by themselves. They pass a lot of the burden on to consumers, by raising the prices of their goods and services. That's right, you as a consumer are paying an average 22 cents out of every dollar to the businesses to cover their tax costs (Boortz 55). Not only do businesses have to pass the cost on to the consumers they serve, but also to their own employees. If businesses didn't lose money to the IRS, they could afford to pay their employees higher salaries and give them more benefits, including health care and vacation time.
An additional problem with the IRS tax structure is that it creates a desire to move companies overseas. Moving manufacturing plants and corporate headquarters to countries like Germany actually saves money for businesses. Places like Germany, although they don't have a great tax code, certainly have a more economically beneficent tax code. But when businesses move overseas, often referred to as outsourcing, America suffers. Jobs that should be given to Americans are instead given to people who live in those other countries. Additionally, because the regulatory costs and the costs of production are lower in those countries, those products, cars for example, become cheaper and more competitive, further reducing the amount of business done with American companies.
These offshore financial centers shelter trillions of dollars from any participation in the American economy. “[T]he 2000 Merrill Lynch & Gemini Consulting study World Wealth Report estimates that one third of he wealth of the world's high-net-worth individuals is held offshore. How much would that be? Try $11 trillion - $11 trillion sucked out of the American economy, all of it immune to the tax obligations you suffer every April 15 (Boortz 97).
Imagine if all of these trillions of dollars were added back to the American economy. On top of that, imagine saving the $500 billion compliance costs every year. These two things would give a huge boost to the American economy. Fortunately, there is a plan to make this happen, a plan sponsored by Georgia Representative John Linder. The plan is called The FairTax, or H.R. 25.
Bibliography
Boortz, Neal & John Linder. The FairTax Book. New York: HarperCollins Publishers, 2005.
McConnell, Campbell R. & Stanley L. Brue. Economics: Principles, Problems, and Policies. 16th ed. McGraw-Hill/Irwin, 2005.
Online. Americans for Fair Taxation. .
Online. Tax Foundation. .
### Chris Liakos is a Political Science major in the University of Georgia. He serves as President of the Georgia Perimeter College Political Science Club in Lawrenceville. After campaiging for the GOP in the Fall of 2004, Chris started a chapter of Students for Saving Social Security at his local campus.
The Income Tax and How it Undermines the U.S. Economy
Chris Liakos
On one day every year, more money is spent by Americans than has been spent on the whole Iraq War. This day is not Christmas or Valentine's Day, or any such fun day as that. This day is April 15, the deadline for Income Tax filing. In case you missed it, filing your Federal Income Taxes is not nearly as fun as opening presents on Christmas morning. It's not even close. Not only is it not fun, but Federal Income Taxes are a huge drain on the American economy, to the tune of $500 billion in 2002, according to the Tax Foundation (Boortz 49).
How did this figure come about? An estimated 5.8 billion hours spent by individuals, businesses, and non-profit organizations in compliance with our monstrosity of a tax code cost Americans approximately $194 billion in 2002 (Boortz 43). Established by the 16th Amendment on February 12, 1913, and having gone through approximately 35 years of reform, the current IRS tax code exceeds 54,000 pages and contains some 2.8 million words (Americans for Fair Taxation). Individuals and businesses usually have to hire professionals called CPAs to interpret and correctly file their taxes.
Not only are these explicit costs crippling, but how much worse are the implicit costs, or in other words, the opportunity costs? Think about it this way: those 5.8 billion hours are not being spent producing anything. As Neal Boortz correctly puts it in his new book, The FairTax Book, that figure is equivalent to the lifespan of 8,700 Americans (Boortz 43). That's almost three times as many people as died on September 11, 2001, every year! Boortz goes further with this analogy:
"What kind of workforce would it take to cover those 5.8 billion hours? If you figure a standard workweek - eight hours a day, five days a week, a few weeks every year off for vacation - it adds up to a workforce of more than 2.77 million people. That's more than the auto industry, the computer manufacturing industry, the aircraft manufacturing industry, talk radio, and the steel industry in the United States combined. (43-4)"
The current tax code continues to cost businesses money in this way: businesses are forced to make tax-decisions instead of economic decisions. That means, instead of making corporate decisions based on what is best for the company's profit, the corporations make decisions based on the lowest-cost tax implications. This hurts businesses in two ways: First, businesses lose potential earnings because the IRS tax code would penalize them for certain decisions. Second, as more of an opportunity cost, business executives actually have to spend time and money on figuring out the tax implications of their decisions. So, not only do the decisions they are forced to make hurt them, but they have to take the time to make those decisions. Corporations could be investing money back into their company, thus growing it and providing more jobs, but instead are having to waste time avoiding high taxes. How much money is lost here?
It is probably impossible to calculate the exact value of all of this time wasted by every American who files Federal Income Taxes, but the Tax Foundation has estimated that, opportunity costs added with the $194 billion compliance cost mentioned earlier, equals a total cost for America exceeding $500 billion. But wait, there's more.
What about embedded taxes? Don't think for a minute that businesses manage the whole tax burden by themselves. They pass a lot of the burden on to consumers, by raising the prices of their goods and services. That's right, you as a consumer are paying an average 22 cents out of every dollar to the businesses to cover their tax costs (Boortz 55). Not only do businesses have to pass the cost on to the consumers they serve, but also to their own employees. If businesses didn't lose money to the IRS, they could afford to pay their employees higher salaries and give them more benefits, including health care and vacation time.
An additional problem with the IRS tax structure is that it creates a desire to move companies overseas. Moving manufacturing plants and corporate headquarters to countries like Germany actually saves money for businesses. Places like Germany, although they don't have a great tax code, certainly have a more economically beneficent tax code. But when businesses move overseas, often referred to as outsourcing, America suffers. Jobs that should be given to Americans are instead given to people who live in those other countries. Additionally, because the regulatory costs and the costs of production are lower in those countries, those products, cars for example, become cheaper and more competitive, further reducing the amount of business done with American companies.
These offshore financial centers shelter trillions of dollars from any participation in the American economy. “[T]he 2000 Merrill Lynch & Gemini Consulting study World Wealth Report estimates that one third of he wealth of the world's high-net-worth individuals is held offshore. How much would that be? Try $11 trillion - $11 trillion sucked out of the American economy, all of it immune to the tax obligations you suffer every April 15 (Boortz 97).
Imagine if all of these trillions of dollars were added back to the American economy. On top of that, imagine saving the $500 billion compliance costs every year. These two things would give a huge boost to the American economy. Fortunately, there is a plan to make this happen, a plan sponsored by Georgia Representative John Linder. The plan is called The FairTax, or H.R. 25.
Bibliography
Boortz, Neal & John Linder. The FairTax Book. New York: HarperCollins Publishers, 2005.
McConnell, Campbell R. & Stanley L. Brue. Economics: Principles, Problems, and Policies. 16th ed. McGraw-Hill/Irwin, 2005.
Online. Americans for Fair Taxation. .
Online. Tax Foundation. .
### Chris Liakos is a Political Science major in the University of Georgia. He serves as President of the Georgia Perimeter College Political Science Club in Lawrenceville. After campaiging for the GOP in the Fall of 2004, Chris started a chapter of Students for Saving Social Security at his local campus.