Paying Taxes is a Taxing Situation

Three of President Obama’s high-ranking appointments had problems with unpaid taxes rise to the surface and become the focus of their nomination hearings.  Only one squeaked through, with the other two withdrawing amid a firestorm of criticism.

It is tempting to advance some cynical suggestions as to the underlying cause of this or assault the inherent mindset of politicians, but that would be little more than malicious subterfuge.

The reality is that our tax laws are so convoluted, confusing, and contrived that there is a high likelihood that despite the best of intentions, errors will occur, often in the form of underpayment.  Although there may be times when this is a matter of volition, I am convinced that in the majority of cases, underpayment is a result of an honest oversight or misinterpretation of the mushrooming tax code.

Clearly, simplification is warranted.  Yet, despite the well-meaning promises that some campaigning politicians make, the reality is that reforming the tax code is fraught with perils of catastrophic potential.  If the resulting tax implications of reform are off even a tad, the consequential revenue swing to the federal government would be huge, either underfunding its operation or padding its bank account.  No elected official would want to be tied to an initiative that accomplished either.

A key reason why it is impossible to accurately gauge the results of tax reform is that tax laws influence our behavior, especially in the business world.  So, as soon as new laws are enacted, behaviors change in order to minimize the ensuing tax ramifications, thus altering any projection.

Tax reform and simplification is desperately needed, but it won’t happen until our citizens collectively demand that it occur — and even then, it will be a long shot.

What do you think? Please leave a comment!