The Underbelly Tax Simplification Program of 2008

Via TigerHawk, I stumbled on this realization of an idea whose time had to come--liveblogging tax preparation (link). The author is in a suitably poisonous mood; when she gets tired of beating up on the feckless and the vulnerable, she falls back on one of the venerable warhorses of the tax protester set--cancel withholding, make people stump up the whole amount on tax day. Make 'em howl, she says. Make 'em really howl. Then they'll understand.

She's right, it would inflct a lot of pain, but it's not clear that it would succeed in revolutionizing the tax system, as she so dearly hopes. She seems not to have noticed that she herself is already right in the midst of our greatest national migraine--the costs, and inconvenience, and general chazurai of tax preparation itself. Slemrod and Bakija estimate that tax prep costs us something like $135 billion a year which, for comparison, is pretty near twice that package of subsidies the Bush administration voted for farmers a couple of years back.

She says she had to fork over about $11,000 which, she says, is about 23 percent of taxable income, about 30 percent of gross. This is remarkable: it suggests a taxable income in the range of $48,000. Per S&B, the average personal income tax rate is about 8.5 percent overall and for the top one percent of all taxpayers, it is abougt 15.2 percent.* For comparison, I see that I'm paying about 21.73 percent and George W. Bush, about 23.99 percent.

So either I'm missing something, or all three of us are overtaxed. But I would have to say she seems most overtaxed of the three--I can see that I earn more than she does, and I can absolutely assure you that W. earns more than either of us (a lot more).

But it does impel me to my tax bright idea of the moment: how much simpler my life would have been had I been able just to fork over a check for 21.73 percent of my income. Hey, I'd even top it off to 22 percent, to take account of the general reduction of friction. What if I did just send a check? Must I assume they would audit me, or is it possible they'd decide they had other fish to fry, and just let it slide?

I'd love to generalize this idea, but I can see I've got to work some bugs out yet: I concede there is just a teensy bit of an adverse-selection problem, in the respect that the only ones who would do it are the ones who know their real rate would be higher. But $135 billion--hey, for that price, we could buy a couple of more years in Iraq.

Update: "Slemrod and Bakija" is, of course, Joel Slemrod and Jon Bakija, Taxing Ourselves (4th ed. 2008), an admirable tour d'horizon of tax policy. Wish I could find one as good for health care.

*Re the "average" tax payments, I see that this is economic income we are dealing with here, so we have a little Haig-Simons action going on. The numbers still sound too low, though.