Best Case for a Flat/Fair Tax

by Gerri Willis

The I.R.S. out with a big report today, charging many of us are scofflaws when it comes to paying our taxes.

In fact, we've underpaid our taxes by 17 percent. That's right -- the I.R.S.’s "tax gap" resulted in tax collections 450 billion dollars below what they should have been. This proportion of individuals and companies who fail to pay their due has stayed pretty consistent at just under 17 percent.

Check out this graphic, based on 2006 year filings (the most up-to-date numbers the government has):

When you add in the fines for paying late, the total tax gap drops to 14.5 percent. Still, in most private businesses, if collections were running 15 percent below schedule, somebody would get fired.

Of course, not everybody in the group is thumbing their nose at Uncle Sam by not filing a tax return at all. Some folks under-report what they owe, others underpay.

And the people with the highest compliance with I.R.S. filings are those of us right in the middle class; the people who file because our employers are submitting W-2s directly to Uncle Sam.

You can't run and you can't hide. In other words, if you work for the man, Uncle Sam will find you. But there was another fact that caught my eye in this report, one that virtually none of the media reported. The fact that the gap -- that $450 billion -- was significantly higher than the federal budget deficit at the time. In other words, there would have been no deficit in 2006, if the I.R.S. had collected all it was due.

So for those of you out there who think we need to raise taxes - Nancy Pelosi, Paul Krugman, President Barack Obama -- the evidence shows otherwise. What we really need is a tax code that people feel is fair -- a tax code that people are more likely to comply with. A simpler tax code.

The sheer fact that nearly half of Americans pay no income taxes at all adds to that feeling the system is unfair and that some people have to pay and others don't at any later.

Because, believe me, the tax code right now is far from simple. The code is more than 72,000 pages long. Stacked on top of each other that would be 24 feet high! It wasn't always so. Take a look at the 1913 tax code at just some 38 pages... 38!

This new report is the best argument for a flatter, fairer tax code in this country, even the I.R.S. admits that.

Simplify the code, make it more effective and compliance might not be such a joke!