Last year a California couple had to file a petition in tax court. The deadline, an IRS official told their attorney, was March 14. Double-checking with another IRS office, the lawyer got the same answer.
So the couple filed on March 14--and promptly got a notice in the mail. Their petition was rejected because the actual deadline was March 13.
Outraged, the couple sued, but a federal court ruled that under current law, the IRS cannot be held responsible for giving taxpayers false or misleading information.
With incidents like this, is it any wonder that Americans feel their faith in government has been betrayed?
There is no greater source of political pollution in Washington than our tax system. And since 1913, when the income tax was born, every effort to "streamline" or "simplify" the system has only made it worse: more complicated, more confusing and more harmful to families and businesses.
The Bible is no less than 773,000 words. But today's federal income tax code and its regulations are in the millions of words--and rising!
Still, the size and complexity of the tax code are only symptoms of a larger problem. For most of this century, the trend has been toward ever-larger government and ever-diminished individual autonomy. In a few years we'll enter a new century and a new millennium. The question is, what direction will we take?
I think the future will be one of decentralization and individual empowerment. The reasons? The end of the Cold War and the dawn of the information age.
We take the end of the Cold War for granted. But it has enormous implications for our political system and others'. To understand why, ask yourself: how did America, the most pro-individual, anti-statist nation ever invented, come to have a government of the size and scope that we have today? The answer is war--the great shaper of this century.
Throughout history, warfare fostered centralization. You cannot face a major external threat unless you have a strong government to marshal the resources to meet that threat. And for the last 80 years, except for brief periods, America has faced a major external threat of one sort or another.
The First World War shattered faith in Western civilization and led to the rise of communism, fascism and Nazism. These, in turn, ushered in the Second World War and the Cold War. These conflicts have been the justification for government expansion in every direction. How did we get federal aid to education? The initial rationale was national security. Federal aid for research and development? National security. Even the interstate highway program initiated in the 1950s was partially justified on national security grounds.
It's taken us 30 years to learn, very painfully, the limitations of government. With the end of the Cold War, we have the opportunity to move in a different direction.
A second great event is fundamentally altering the way we live and work. Whether you call it the information age or the computer age, this new era is symbolized by the microchip, which is extending the reach of the human brain the way machines extended the reach of human muscle in the Industrial Age.
The microchip age will have a profound political impact as well. Like warfare, the dynamic of the machine age was centralization. You needed big companies to compete. These fostered big cities, big unions and, in their wake, big government.
Today, in contrast, size gets in the way of agility--of being able to change with changing times and circumstances. The dynamic of the microchip era, therefore, is decentralization: back to the American Constitution's "We the people" Jeffersonianism.
Some feel that the sophistication of new technologies will leave people behind. This is not true. When you go to a supermarket, you see sophisticated inventory equipment that is changing the face of retailing. Yet virtually everyone has learned to use it.
Or think about the calculator, which has made everyone virtual math geniuses. We can do in a matter of seconds the kind of computations that would have taken math whizzes hours to do in the past.
What could these changes mean for politics? Take Medicare as an example. As this huge, centralized program goes broke, the "old" political system responds: raise taxes, cut benefits, raise premiums. Instead, why not decentralize? Allow Medical Savings Accounts, which give individuals control again, rather than governments or third-party payers.
Social Security is another example. It's even bigger and more centrally controlled. But with a bit of innovation and imagination, we could introduce a new system for younger people, where part of their payroll tax would go to their own, individual retirement account. By the time they retire, they'll have more than they would under the current system--even assuming the system could meet its promises.
Right now these changes are alien to many political leaders, who've ferociously resisted any loss of government power and control. But there's no reason the government has to have such power and control.
There's also no reason we can't have the economic growth necessary to make these changes--if we can also reform the tax code, the symbol of the era of war and government expansion, and a dead weight on American life.
Taxes do not just raise revenue for the government. They are also a price and a burden. The tax you pay on income and capital gains is the price you pay for working, taking risks and creating jobs. The proposition is simple: If society lowers the price on those good things, lowers the burden, we get more of them. If we raise the price and the burden, we get less.
The typical family today pays eight times as much tax on each dollar of income as a typical family of 1948. But suppose we replace the current mess with a flat tax. We could set generous exemptions for individuals and children to allow a family of four to pay no federal income tax on their first $36,000 of income. Anything above your exemptions would be taxed at a flat rate of, say, 17 percent.
That's it--so simple you could fill out your tax return on a postcard. It is also fair. The more you make, the more you pay, but with no more loopholes for the well-connected.
A flat tax would also have a "super majority" provision--Congress could not raise taxes unless it had a two-thirds majority. That way, people would not have to fear that politicians could easily jack up taxes again, as they have after previous reforms. Some experts say that the complexity of the tax code is unavoidable. It isn't. In a democracy, there is no reason people shouldn't understand and believe in their laws.
No nation in history occupies the position that we do today; no state has our global influence. If America gets it right, the rest of the world has a chance to get it right. But we won't get it right until we understand that our power does not come from the capabilities of our military or our government. Our ultimate power comes from the vitality of people free to pursue the American Dream.
