How Taxes Steal Dreams

What’s the one thing everyone agrees we can’t possibly make more of…? Katy Perry hits? Adorable cat videos? Invitations to Google Glass? Not even close. Even cash is abundant – it’s handed out in bushels by the Fed to everyone but you. The one thing that’s truly finite is time. That’s why the Great Recession and Bernie Madoff seem like gentle kisses compared to the massive, multi-year conspiracy stealing meaty, bloody chunks of our lives. The tax code (including plans like 401K, IRA, 529, and HSA) claims years of human potential, money, and productivity. Its greatest hustle is convincing 300 million Americans that it’s for our own good. We've fallen in love with our captors. This is how we escape…

INNOVATION??

I was evaluating an innovative financial services startup for partnership or acquisition by a client. Then it occurred to me – the only reason this company exists is because of comically absurd regulations. They say government doesn't create jobs. I beg to differ. Every single regulation creates a useless cottage industry of paper pushers around it. While I admired these entrepreneurs for inventing the financial equivalent of a flame-retardant cat, I can’t help but wonder why exactly are we setting our pussies on fire…?

Let’s talk about why the US tax system is a flaming monster that must be stopped.

TIME THEFT

The Federal tax code is over 74,000 pages long. Americans spend six billion hours or 8,758 lifetimes filing taxes each year. By some estimates, that’s longer than the last Hobbit movie. That’s precious time that could be spent with family, friends, or creating life-saving #hashtags. The $168B Americans spend annually on tax compliance doesn’t include the countless hours wasted nursing 401K’s, IRA’s, 529′s, HSA’s, FSA’s and all the other mutant children of a broken tax code. To add insult to injury, these plans are full of big, hidden fees. They’re essentially a wealth transfer from workers to financial services companies.

Some employers are getting sued for using high fee funds and kickbacks to cover plan administration costs. Even if employers win, the joke is still on them – and their shareholders. Employees who are busy optimizing withholdings and 401K deductions are not busy fending off Amazon or Google. Millions of productive hours wasted on nonsense that has nothing to do with their business.

CASHPIRACY

There’s a reason our kitties are burning.

Intuit (maker of TurboTax), alone, spent about $12 million lobbying to keep the tax code only slightly more complicated than marrying a heroin addict. Accounting is a $94B industry and the tax preparation segment is cutthroat, like Braveheart with #2 pencils. Like Al Sharpton, Arafat and Rogaine, accountants would disappear the minute they solved their constituents’ problems. The real money is in perpetuating, then treating the disease. Forever.

When the big meteor comes, I’m convinced earth’s next intelligent species will somehow owe withdrawal penalties to the $837B retirement planning industry. Billions in fees means hundreds of millions in lobbying to defend them. Every new concoction – Roth IRA, 401K, 529, etc., requires its own sales force, administrators, and pamphlet designers. This is a taxpayer-funded jobs program. But the worst possible kind. Soulless administrators are never alive enough to dream - or rise to their potential.

It doesn't end there. Companies and other special interests spend billions for tax breaks and loopholes that add line after line to the tax code. We’re still paying farm subsidies from the 1920′s!!!

HOW TO EXTINGUISH A CAT

Hostages can forget what freedom feels like. Here are a few thoughts on how we might claw towards the light. Email or tweet me yours.

1) The one page challenge

Republicans say they want government out of people’s lives and to make it easier to start and run a business. Democrats claim they want to end corporate welfare and inequality. Let these heroes prove it. Here’s an issue both sides can get behind. Let’s set a new goal for America – a one page tax code by 2020.

Yes, it’s like spearing a whale with a spork, but if we can land on the moon, we can edit a 74,000 page document down to a simple table of tiered rates. The tax code should fit on 1 sheet of paper with 11 point font. And no cheating with the margins, like when we fall in love with every line on our resumes.

We can start by phasing out 97% of deductions, e.g. loopholes (yes, they are one and the same). Then do the same with our insane administrative “savings” programs. People can figure out how to save their own money without expensive, punitive training wheels. But just in case, let’s set a little aside for financial literacy education.

We can track progress using one metric: word count. Each piece of legislation should reduce the net word count of the Federal tax code. (It’s OK to add 100 to remove 1000.) Let political candidates brag about how much efficiency they created.

2) Align taxation with national goals

Instead of focusing on taxing income, as we do today, we should tilt towards taxing savings (aka wealth) and consumption. Why?

• Reducing income taxes motivates people to work.
• Taxing wealth, or idle cash, motivates investment and shifts the burden towards those who can most afford to pay. We should also include incentives for productive investment of that wealth, like starting businesses and hiring workers.
• The beauty of Europe’s VAT is that taxing consumption discourages waste. It’s the ultimate “green” tax.

3) Simplify collection

There are 10,000 ways to collect taxes—all of them more efficient than asking 300 million Americans how much they earned last year and mailing a form. Between payroll companies like ADP, banks and brokers, the US can completely automate all tax collection. As Europe already proved, filing taxes shouldn't be so hard (The Economist).

4) End lobbying

I've written extensively about lobbying in Fire Them All. Suffice it to say – everything in government will feel like licking a garbage truck as long as politicians are dependent on billions from private sponsors. Organizations like Mayday PAC, Represent.US and WolfPAC are making admirable progress on this. Senator, nay, Saint Bernie Sanders has proposed a constitutional amendment to do this. Let’s make it happen.

If I missed something, I'm sure you'll contact me or comment below.

Click here to read more of my writing & sign up for the email newsletter

Micro-Bio: I’m the author of Econovation, CEO of IdeaFaktory innovation consultancy, and former American Express, Citi and MasterCard executive. Stalk me via email newsletter, Facebook, Twitter & Google+.