The IRS says that we're losing about $300 billion (a year?) from people not paying their taxes. The culprit is income tax and the incredible complexity of it all. People under-report their income (imagine this, we require people to report their tips) and the take too many deductions. This is an example of how the current tax system, based on income taxes with lots of deductions, is a drain on the economy because it's not enforceable. This is one of the burdens.

The second burden is the time and money honest people spend making every effort to comply with the tax law. I have an MBA from the Fuqua School of Business and I don't have a clue about my taxes. I'm one of the few who ends up paying too many taxes due to a genetic inability to save receipts. Imagine, just imagine, what it would be like if we eliminated the income tax and moved toward a consumption tax as recommended. Not only would it make cheating harder to do, since businesses can be audited with much more accuracy (there are fewer businesses than there are individuals, so it's more efficient to audit them) so there will be less cheats, plus we won't have to pay accountants and TurboTax to do our taxes for us. Of course, there are more benefits to a consumption tax. One of the most valuable is that it wil encourage savings. If we save more, it will have a positive impact on the trade deficit (it's a long story) AND it will lower interest rates. Lower interest rates do more for economic growth than tax cuts because they have a much broader impact.

Originally published March 29, 2005.