Benjamin Franklin once said, “nothing is certain but death and taxes.” Nobody likes taxes, but they are necessary for a functioning society. I have studied taxes academically and, as a small business owner, I’ve also experienced the business end of our tax code. Our current tax system is inefficient, creates unnecessary pain and anxiety, and has become a tool of the powerful. We can do better.
For brevity’s sake, I will focus on the income tax, which became institutionalized with the ratification of the 16th Amendment in 1913. Initially, it affected only the very wealthy (only 357,000 out of 97 million people paid it, and the maximum rate was 6%). That changed when the costs of waging WWII overwhelmed the tax revenue system, and the income tax became a mass tax, with 40 million people contributing.
In 1986, President Reagan implemented a bipartisan tax reform bill that greatly simplified taxes, and eliminated the distinction between types of income (interest, capital gains, wages, etc.). This eliminated an entire industry of tax shelters that were designed to allow taxpayers to change wages into capital gains to reduce taxes. Since then, complexity has crept back into the tax code, with a reduced rate for capital gains (which is why Warren Buffet pays a lower tax rate than his secretary) as well as a…
