Paying for Taxes

President Bush bears the dubious distinction of being the biggest spender in all of American history. The federal government is spending more today than it ever has. And when the bills come due for this gigantic spending spree, the government is going to go right for your pocket. What's worse, for every dollar the government takes in taxes, there's an additional 65 cents in hidden costs: the costs of actually collecting those taxes. The government agency that does the work of collecting taxes is, of course, the Internal Revenue Service. On the surface, the agency appears to do a very efficient job. The agency reports that its own operating costs take only about one percent of what it raises in taxes. But that figure hides the real costs--because most of those are borne by other people. What kinds of costs are we talking about? According to an article in Policy Review, it starts with the record-keeping and paperwork we do to comply with tax laws. That includes the time it takes to keep receipts, learn about tax requirements, make calculations, and fill out tax forms. The more complex the tax code grows, the more time these things take. Many businesses have to hire expensive professionals to maintain their tax records. And remember that businesses also keep tax records and collect taxes for their employees. All told, it takes American taxpayers over 5 billion hours--the equivalent of 3 million people working full time--just to comply with tax laws. Another cost imposed by the tax system is the economic disincentive it creates. You see, a tax acts as a penalty. If you're required to pay out money every time you do a certain activity, the effect is to discourage that activity. For example, income taxes penalize us every time we engage in productive labor. The effect is to undermine the incentive to work. And taxes on corporations undermines their incentive to invest in production. One study calculated the amount of production lost due to tax disincentives, and found that it comes to a staggering $300 billion every year. There are other costs as well. As the tax burden becomes greater, more people look for loopholes and tax shelters. The IRS spends more of its time plugging loopholes. Audits are made. Tax attorneys are called in. The whole process becomes more and more time-consuming. All together, the real economic costs of the tax system are much more than the one percent of tax revenue reported by the IRS. In fact, every dollar paid in taxes actually costs the economy an additional 65 cents. So every time you hear people talk about how much a government program costs, remember that the real price tag is much higher. Every dollar the government spends costs us $1.65. If a housing program costs $20 billion, it really costs the economy $33 billion. When representatives of Congress raise their salary to $125,000, they're actually asking the country for $206,000. The government calculates its budget as though tax-collection costs almost nothing. That's like thinking you can buy a car by paying only for the parts and not the labor. It's time for the government to get honest with the American people about how much it's really asking us to pay for its programs.

04/20/92