The original tax code contained only 11,400 words; today, it has more than 7 million.
Welcome to the June Staycations issue of NorthBay biz, which also features a special report on Technology. This issue celebrates the one-year anniversary of implementing all the new content and design changes to the magazine. Judging from all the reader and advertiser feedback, the changes were met with high approval. This year is also special because the magazine is celebrating its 40th year of serving the best interests of the North Bay business community. To top off an already great year, NorthBay biz was named 2015 Small Business of the Year by the Santa Rosa Chamber of Commerce.
So please enjoy the stories, design and all the new features in the North Bay’s only locally owned, formerly glossy, full-color business publication—NorthBay biz.
Having just survived the annual ordeal of filing state and federal business and personal income taxes reminded me that, as we enter another presidential election cycle, we’re sure to hear from politicians of all persuasions on how to best reform a clearly broken tax system. And then, after the election, despite all the promises, nothing will change. But it sure the hell should.
To put this topic in perspective, let’s begin with some history of income tax in America. The first income tax was levied during the Civil War to fund the Union’s war effort. It was repealed seven years later, in 1872, when the Supreme Court ruled it unconstitutional, as it was a direct tax on citizens, at the time prohibited by the Constitution.
Back then, proponents of the income tax argued that, if adopted, it would only impact the rich. (Apparently, some arguments never get old.) Given the Supreme Court ruling, however, the only way to institute a federal income tax on the nation was to pass a Constitutional Amendment. And that’s exactly what happened in 1913, when the 16th Amendment was passed. In that first year, 357,598 1040s were filed. The tax rate was 1 percent on incomes of more than $3,000, which increased to 7 percent on incomes of more than $500,000. Before the 16th Amendment, excise taxes and tariffs accounted for more than 90 percent of federal revenues. It didn’t take long, however, (1920) before income tax was providing the vast majority of the government’s revenue.
Growing slowly at first, the tax code began to expand exponentially. Believe it or not, the original tax code contained only 11,400 words; today, it has more than 7 million. In the first 26 years of its existence, the tax code grew to more than 500 pages in length. In times of national crises, it’s much easier for government to expand its role into areas not originally thought to be within its provenience. Consequently, through the years leading up to World War II and during the war itself, the tax code mushroomed to more than 8,200 pages as it became more convoluted and complex.
Beginning in the late 1960s and throughout the ’70s, the country saw the beginnings of the movement toward “social engineering” by federal law. It isn’t surprising that, by 1984, the tax code had grown to 26,300 pages, but we still hadn’t really seen anything yet. In the ensuing decades, lawmakers enthusiastically turned to using the tax code to direct and implement multiple social and economic objectives they felt would, at a minimum, encourage a certain type of preferred behavior by the electorate. Figuring out that they couldn’t simply mandate everything, they resorted to financial incentives/coercion to attain their goals. In fact, today’s IRS is a super-agency. Social policy is powerfully driven through the tax code as the agency enforces the work of every other cabinet bureau.
So, why and how did the tax code become so bloated over time? In a simple phrase: special interests. Built into the code are thousands of pages of breaks and special exemptions that only benefit a select few. These “loopholes” are written by big government proponents exclusively for big government cronies. The massive corporations and billionaires (think Warren Buffet) in this country have the influence, money and lobbyists necessary to corrupt the code and create exemptions just for themselves. Does the average taxpayer have this ability? Not so much. So as the tax code becomes more amicable to powerful influentials, it abandons its original intent and becomes more convoluted and complicated for the rest of us.
In 2014, the federal tax code hit an all-time high in length. From its initial 25 pages, it now contains a staggering 75,000 pages. Is it any wonder it takes Americans a collective 6.2 billion hours to prepare and submit their annual tax forms? If we want to return to policies that encourage economic growth and productivity for all, reining in the size and scope of the federal government is the place to start. Fundamental tax reform is the best first step in that process.
That’s it for now. Enjoy this month’s issue.
