This post on X distributed yesterday generated a good number of views. It includes a 2014 letter to the US Internal Revenue Service (IRS) that highlights the poor state of the US tax code.
Donald Rumsfeld, an old pol who passed away in 2021, who was the Secretary of Defense during the Bush Administration, expresses a widely held view among the US population: submitting required tax forms is beyond comprehension for anyone. This includes many accountants.
To quote the missive:
“The tax code is so complex and the forms are so complicated, that I know that I cannot have any confidence that I know what is being requested and therefore I cannot and do not know, and I suspect a great many Americans cannot know, whether or not their tax returns are accurate. As in past years. I have spent more money than I wanted to spend to hire an accounting firm to prepare our tax returns and I believe they are well qualified.
This note is to alert you folks that I know that I do not know whether or not my tax returns are accurate, which is a sad commentary on governance in our nation’s capital.”
Yes, everyone knows it, and no one does anything about it. This fact is emblematic of a broken legislative process.
A permanent income tax took effect only in 1913. Initially, only 1% of the population had to pay. The top rate stood at a mere 6%.
Perhaps the last attempt to fix the problem was during the Reagan Administration, which pitched a flat tax that could be submitted on a document the size of an index card. What the optimistic plan failed to address was the legion of tax preparers and special interest groups that benefit from the current mess.
While tax preparation has improved largely due to software and the advent of artificial intelligence, which should automate further, the reality is that a simplified code would save billions in lost productivity, time, and money. While some politicians who do not understand basic economics scream that well-off individuals need to pay their fair share (an undefined amount), few are demanding simplification – something everyone should agree on.