The first income tax in the US was the Revenue Act of 1861, passed by Congress and signed by President Lincoln in an effort to pay for the men, weapons and materials needed for the War of Northern Aggression. The act stated that any citizen making over $800 per year was subject to a 3% Federal tax. In 1862 the tax was repealed, but immediately replaced with a 3% tax on all incomes over $600 per year. Along with tariffs and property taxes, around $50 million was raised to prosecute the war for the Union. At the time, only around 3% of the population made more than $800 per year, and the income tax was supposed to be retired in 1866, but Congress ignored that detail and instead established the Internal Revenue Bureau. Today’s Internal Revenue Service employs 79,070 full time equivalent workers, and in 2022 the IRS spent $14.3 billion for operations and salaries. In 2023, the IRS collected a total of $4.9 trillion from US citizens and businesses. The issue here is that the US government spent, during 2023 alone, a total of $6.13 trillion. You begin to see the problem.
The tax code of the United States in 1913 was ratified as the 16th amendment to the Constitution, and the entire text was 27 pages. Our current tax code is sold today by the IRS in two volumes; the first volume contains 1,404 pages and the second 1,248. You can buy your own personal copy of the entire code (both volumes!) for about $230, and the IRS says a discount is available if you choose to buy multiple copies. They are not currently on any best seller list.
Changes to the tax code occur more frequently than you might imagine, and the single most amazing thing about that is Congress almost never checks to see if any of the changes conflict or cancel out earlier statutes before adding new ones. I am convinced Congress loves the complications and understands most of us will at least attempt to follow the law even when it makes no sense. US citizens spend over 6 billion hours each year trying to correctly compute their taxes and complete the required filings. I personally use an online commercial tax service at a personal cost of several hundred dollars each year, not because I have a large income but because if I am audited I want the reassurance of them with me if I face an IRS auditor. Americans spend over $13 billion dollars per year on tax preparation.
The chances of an audit for individuals is around 1% but are higher for businesses. Want to increase your chances of an audit? Claim charitable deductions over what is normal for your income, have large numbers of cash transactions in large amounts or have income reported to the IRS that was not claimed on your tax return. Of the 180 million US individual tax returns filed in 2021, those with incomes under $25K have a 0.04% chance of an audit, from $25-500K is 0.02, and if you make $10 million or more the chances rise significantly to 8.7%. Unsubstantiated rumors say the IRS actually audits a higher percentage than reported of those $25-150K earners because they are less likely to have legal representation and are more willing to just pay the extra fees than hire legal representation and incur even more expense.
Need to fume a little bit at how the tax code is structured? OK, you asked for it. You probably would not be surprised that many large companies pay little or no taxes each year and are allowed to claim billions of dollars yearly in tax breaks. At least 54 million US citizens - in the neighborhood of 61% - paid zero taxes or got refunds from the IRS. That means that 39% of us support most of the rest. Hmmm. Because of tax breaks, over 1500 people with incomes over $1 million dollars per year paid no income taxes. In a surprising revelation, at least to me, the IRS sent out more than $125 billion in fraudulent refunds over the last decade, and that figure continues to rise each year. There is a Criminal Investigation division of the IRS that tells of recovering and prosecuting tax frauds and schemes and encourages whistleblowers to report, but no total recovery amounts are listed. They do, however, seem rather proud of the payments they make to whistleblowers that turn in suspected tax cheats.
Corporate taxes in the US are the highest in the world. US corporations like GE, Microsoft and Pfizer escape these rates by maintaining a multinational status and by keeping their income stashed in other countries to avoid paying US taxes. US citizens, however, must pay US income tax regardless of where they live. Billions of dollars per year in tax breaks go to the owners of professional sports teams. One of the depreciable assets they get to claim are their respective player rosters. In spite of the fact they make millions each year, the NFL, PGA and NHL are listed as non-profits, and pay zero income taxes on their earnings. Really? Really. I was more than a little surprised to learn that deductions for business expenses are allowed for activities illegal in most states. The Mustang Ranch, a “house of ill repute” as granny would say, is allowed to write off free passes as a promotional expense, and sex workers there can legally claim breast implants and costumes as deductions. (Insert your own inappropriate joke about Congress here.)
Reinstituting Congressional earmarks for funds for local projects in 2022 led to enormous increases in what, after an 11-year congressional pause in the practice, predictably led to enormous increases in pork barrel spending. In that year, 275 Democrats received 7,890 earmarks totaling well over $14 billion, and 127 Republicans 2,109 earmarks costing taxpayers a little over $7 billion. Here are some of the highlights of what Congress is paying for with pork barrel spending using our money:
$4 million for Wheat, Peanut and Other Field Crops Research Unit facility improvements.
$4 million for Sugarcane Research Unit Improvements.
$1 million for infrastructure improvements at the Southeast Poultry Research Lab in Georgia.
$500,000 for wild horse management in Nevada.
$117,000 for rehabilitation of a wastewater treatment plant in the National Rice Research Center in Arkansas.
$40 million for a project to restore South Florida’s ecosystem.
$32 million for a project for 2 ocean inlets in New Jersey.
$31 million for the “Morganza to the Gulf” Hurricane Protection System.
$61 million for two projects to combat underwater pests.
$13 million for 2 earmarks funding fish passages and fish screens for the Sacramento River (CA) fish screen program.
$7,250,000 for the Jimmy Carter Presidential Library and Museum in Atlanta.
$12 million for the International Fisheries Fund.
$6 million for the U. S Grant Presidential Library in Starkville MS.
There are thousands of these, but I won’t even try to give you an exhaustive list. I’m guessing you, like me, are wondering why there is a US Grant library in Mississippi, and if there might also be a Robert E. Lee library in New York City. If so, I’m betting it gets Congressional funding.
So why in the world do we continue to put up with the world’s most complicated tax code? You can put that down to the deadly combination of greed, power, influence and special interests, and the enormously unhealthy addiction of politicians to big government and your tax money. Government spending is growing exponentially faster than inflation, and even though federal tax revenues have grown around 8.7% annually, politicians from both parties have no trouble finding “really important” ways to spend the additional revenue plus a good bit beyond. So why do they keep spending when everyone says we are out of money? Primarily because they want to, and they are acutely aware that tax hikes to pay for everything they spend will undoubtedly slow the rate of economic growth. Make no mistake about it - the reason they are spending is to buy votes. Period. They do NOT want to cut spending because by doing so someone, somewhere will be mad and vote against them, and re-election and personal enrichment is their focus above all else. Besides, in 2023, 25% of all jobs created were government positions. Besides the military, name any government position anywhere that creates anything beyond more bureaucracy. Stumped? Me too.
Then there’s the issue of special interests and corruption. Support for tax loopholes for special interest groups are traded by politicians for cash donations for their campaigns. Special interests and lobbyists - there are around 12,000 in the DC area, with many of them former politicians - use these donations to essentially buy votes from Congressmen from both parties. The purpose of the “donations” is to influence legislation before Congress. Period. One study estimated lobbyists, from 1998 to 2010, spent a total of $28, 919,684,431 on Congressional influence peddling for a variety of industries: Finance, Real Estate, Health Care, Communication/Electronics and Businesses being the primary donors. My guess is that those figures have increased significantly since that time. All of this activity is supposedly legal and above board, but when we are talking about $30 billion dollars, I’m not sure we can count on honesty from politicians that make their living telling different versions of the truth to support positions paid for by the lobbyists that offer them the biggest bribe. It’s difficult to pretend you are serving public interests when making millions of dollars from special interest groups. President Harry Truman warned us about this years ago; “Show me a man who gets rich by being a politician and I’ll show you a crook.” He also noted “My choice early in life was either to be a piano player in a whorehouse or a politician. To tell the truth, there’s hardly a difference.” We have, in effect, created a duly elected criminal class by continuing to vote for the same politicians again and again.
So what’s the alternative? There are several, and all are related. Follow me on this;
First, we need term limits for Congress just as we already have for Presidents. The PEW Research Center reported in 2023 that 87% of respondents to a survey supported term limits for Congress. In a similar study, also in 2023, the University of Maryland found 83% of those responding supported a constitutional amendment establishing term limits. In that study, 80% of Democrats, 86% of Republicans and 84% of Independents supported the amendment. It seems the only ones who don’t support the idea are those in Congress and the relatives they support. Many of them argue about the value of “experience in office.” My reply to that is we cannot continue to afford the cost of their experience in office. Since Congress refuses to consider this measure, I am instituting my own version of term limits, and will never, ever, ever vote for any candidate for any local, regional, state or national position after more than two terms in any office. I encourage you to do the same, and by doing so effectively institute de facto term limits for all politicians.
Second, insist that Congress pass legislation to prohibit “omnibus” bills that combine far too many unrelated issues into one bill, creating the obscene situation described by Nancy Pelosi who stated about a particular omnibus bill “we have to pass it to see what’s in it.” Bills like those sneak in billions of dollars of pork projects that serve no purpose other than, once again, buying votes with taxpayer money. My guess is that not one person actually reads any bloated legislation of 2,500 pages or more or even considers the billions and billions of dollars in discretionary spending added to the backs of taxpayers with each monstrosity. If any lawmaker has an idea for a bill, it should be that idea alone that is voted upon with no more sneaky, underhanded amendments tacked on in secret and at the last minute.
Thirdly, scrap the entire US tax system and pass a bill calling for a flat tax for everyone. How can anyone - other than politicians - be opposed to something so simple and effective? Think of it this way; politicians use the tax code as a form of class warfare for political gain. You’ve seen it and heard it a thousand times - “Tax the rich so they will pay their fair share!” What they won’t tell you is that the current tax code is set up so “the rich” - those that donate heavily to politicians - can manipulate loopholes to pay less because of the donations they make to those same political factions. Those special interest groups I mentioned earlier have a lot of money invested in politicians to make sure it stays that way. Don’t think for a second that those donations come without strings attached.
A simple, fair flat tax system could easily be structured to be revenue neutral. A tax of 17 to 20% on individual incomes with a family allowance and the elimination of all other credits and deductions with the exception of the current Earned Income Tax Credit; a distributed profits tax of 20% for domestic and foreign profits earned by corporations and the elimination of death taxes and a simplified method of computing capital gains taxes would result in savings for US taxpayers and businesses of more than $100 billion annually in compliance costs, including tax preparation fees and administrative compliance costs. Estimates from the US Tax Foundation suggest these changes would increase long term GDP by 2.5%, raise wages by 1.4% and add 1.3 FTE (full time equivalent) jobs to the economy. An average increase in after-tax income per taxpayer would be 3.5%. Just on the face of it, most of us would be happy to get away with paying 20% of our income in Federal taxes and save the preparation fees.
I suppose if it weren’t for sales tax, ad valorem taxes on cars and property, state income taxes and all the other hidden, unseen taxes we all pay, sometimes without even knowing we are paying them, Federal taxes by themselves would be so bad if we were guaranteed the money was being spent wisely and in our best interests. It’s not. Federal oversight of almost every single program funded with Federal funds collected from taxpayers is rife with fraud, corruption and an alarming lack of adherence to basic accounting principles and with zero accountability. Need a for instance? Here’s one. According to the US Government Accountability Office, the US government made incorrect payments totaling $247 billion in 2022. That figure is not unusual nor limited to that year. Over the last 10 years, $2.4 TRILLION DOLLARS have been lost due to simple accounting errors and mis payments by the US government, and those losses seems to be acceptable to them as the price of doing business. That means our government is LOSING $750 per person per year and doesn’t seem too worried about it.
Another gigantic pile of mismanagement, corruption and outright fraud are the COVID relief efforts. In the Paycheck Protection Program (PPP), $80 billion dollars has been lost to fraud alone. Of the $900 billion Covid unemployment relief program, estimates are that between $40 billion to $400 billion has been stolen. Another $80 billion has been awarded in fraudulent claims from the inadvertently but appropriately named Covid disaster relief program. Don’t forget, none of this includes the waste, fraud, deception and mismanagement of billions of dollars in every other Federal program maintained at OUR expense and rarely to our benefit.
Balderdash, poppycock, bunkum, rubbish, blarney, horse feathers, bollocks and blather. What we need is a restoration of accountability for politicians first and government employees second. A government so large it loses $750 (or more) for every US citizen is not competent to serve anyone but themselves and leads me to believe my tax dollars are not, in fact, going to buy tubas for the Marine Band, but into someone else’s pocket. That makes me mad as hell, and I refuse to take it anymore. I believe the time has come for all of us to realize that “career politician” has become a dirty term and antithetical to the freedom and unity our country used to stand for and to promise to vote against career politicians and for those candidates with the moral fiber and courage to do what is right and not what lines their personal coffers with our money, and in one of the greatest, most deceptive con jobs in history congress is using your money to buy your vote and convincing you not only to thank them for doing so but that they are serving in your best interests. This lunacy must end. Vote them out now.