Tax Day is upon us, providing us another example of how overbearing and complicated our government truly is. April 15 is the deadline every year when every citizen must hesitantly file his or her taxes or face the wrath of the uncontrollable Internal Revenue Service. The tax code has become quite a monstrosity over the past few decades. It is riddled with all kinds of loopholes and deductions for corporations and wealthy people to take advantage of, leaving the middle class stuck with the bill.
Let’s first consider just how overly complicated that tax code is. The entire code is almost 4 million words; the entirety of the Harry Potter series is about 1 million words. You could read the entire Harry Potter series four times or read the entire tax code once. If you don’t think that’s insane, then you must also think we don’t have a problem. Within those 4 million words, special interests and politicians have crafted a law so convoluted that we have special lawyers who use it to their advantage to get companies out of paying taxes.
Take Merck, the pharmaceutical giant, during the second quarter of 2014. They paid absolutely no taxes even as profits rose 52 percent, or about $2 billion. They actually had a negative-effective tax rate of 7.5 percent and got a tax credit from the government. While this move came about as a one-time tax benefit because of financial proceedings the company took, it is still outrageous that a company that large — and from an industry that has a history of taking corporate welfare and profiting off sick people who have nowhere else to go — could get a net tax credit.
But it isn’t their fault. I blame no corporation for doing what they can to pay low taxes. The point of a business is to make a profit, so when there are rules that allow for less taxes, who wouldn’t take advantage? This point was made perfectly by Sen. Rand Paul during a 2013 Senate permanent subcommittee on investigations hearing about how Apple avoided paying billions in corporate income tax. While the government was, as Paul put it, “bullying, berating and badgering one of America’s greatest success stories,” Congress is to blame for creating a “Byzantine and bizarre tax code.”
Paul is completely right. Our tax code allows for Deferral of Overseas Income, where a company doesn’t have to pay U.S. taxes on overseas profits until it is transferred back home. Additionally, an accounting gimmick known as “transfer pricing” allows corporations to move profits from the U.S. to offshore tax havens and pay no taxes. A Government Accountability Office study in 2009 found that 83 of the top 100 publicly traded companies practice this method, most notably General Electric, Google and Pfizer. This practice alone accounts for a loss of about $150 billion to the federal government each year. This isn’t the only accounting gimmick. There are hundreds more that end up costing the federal government hundreds of billions of lost revenue each year.
We don’t have to continue to put up with a tax code that drains the middle class and forces companies to apply all these accounting gimmicks. It’s on us to focus our priorities and demand our representatives take tax reform seriously, and if they won’t do it, send them packing from the Capitol. Also, when I say tax reform, I don’t mean adding more rules to an already inflated tax code. I mean completely getting rid of the current tax code and putting something forth that is much simpler and fairer.
Why don’t we lower our corporate tax rate from 39 percent — the highest in the developed world — to something more sustainable in the teens to attract business back to America? Why don’t we significantly lower the capital gains tax to near zero to invigorate investment in this country, especially when so many studies suggest that when you lower the capital gains tax the government actually takes in more revenue? Why don’t we lower all tax brackets, or better yet have a flat tax to allow everyone to keep more money in their pockets and increase their disposable income? I urge everyone to do more research on tax reform because, while we are students, and most of us probably don’t pay that much in taxes, we will soon enough and would like this mess to be cleaned up.
Nick Eagle is a UF economics and political science senior. His column appears on Mondays.
[A version of this story ran on page 6 on 4/13/2015 under the headline “America needs tax reform, and we need it now”]
