American Taxation (May/June 1996 | Volume: 47, Issue: 3)

American Taxation

AH article image

Authors: John Steele Gordon

Historic Era:

Historic Theme:

Subject:

May/June 1996 | Volume 47, Issue 3

JEAN BAPTISTE COEBERT, THE FINANCIAL GENIUS WHO kept Louis XIVs famously expensive government afloat, once said, “The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing.”

Today, the American goose flock, 260 million strong, is hissing furiously over the nation’s federal tax system, and it is not hard to see why. The United States Internal Revenue Code takes up six inches of shelf space in two fat volumes. But that is not the half of it. Federal tax regulations, the Talmud, if you will, to the Torah of the tax code, takes up an additional foot of shelf space in eight volumes. Thousands of accountants and lawyers devote entire careers just to small portions of this behemoth, and no one could possibly know its entirety, not even the Internal Revenue Service. Indeed, it is estimated that one-third of the inquiries made to the IRS’s own 800 help line are answered incorrectly.

Every year the IRS sends out more than eight billion pages of forms and instructions (requiring, at least according to one authority, 293,760 trees to make the paper). Even modest incomes can require an astonishing number of pages of tax forms to report. My own—believe me, modest—income needed sixteen pages for the federal return for 1994, another seven for the state. A friend who comes from a wealthy family and has his own considerable business had a personal return this year that ran to more than four hundred pages.

Meanwhile, corporations have it far worse. Chrysler’s 1991 return, for instance, was a stack of paper six feet high, prepared by fifty-five accountants who worked on nothing else that year. The company is perpetually audited by at least nine IRS agents. Chrysler’s chief tax counsel estimates that it will be ten years before all current matters in dispute between Chrysler and the Internal Revenue Service are settled. And they will be settled, essentially, by negotiation. There simply are no cut-and-dried, right-orwrong answers to the thousands of questions that are raised in a return that has tens of thousands of calculations that are required by a law that has hundreds of thousands of provisions, exemptions, provisos, interpretations, and internal contradictions.

FOR MOST OF OUR history—from 1789 until World War I—import duties usually provided most federal revenues.
 

So, corporations and individual taxpayers alike have no certainty whatever that others in similar economic circumstances are paying similar amounts of taxes. The tax code makes tax avoidance (which is perfectly legal and proper) easy and tax evasion (which is a felony) tempting. After all, if the best place to hide a book is in a library, the best place to hide a tax dodge (legal, illegal, or in between) is in the depths of a tax return the size of one or more phone books.