March 24th, 2012
03:43 PM ET

Zakaria: America needs a 2-page tax code

Editor's Note: Be sure to catch Fareed Zakaria GPS on CNN every Sunday at 10am and 1pm ET.

By Fareed Zakaria, CNN

We’re going to hear a lot of polarized rhetoric over the next few months. The Republicans and Democrats will seem to disagree about everything. But there is one huge and important area where there is a possibility - a possibility - of bipartisan action and that’s tax reform.

Most Americans - Republicans and Democrats - dislike the tax code. They’re right to do so. America has what is arguably the world’s most complex tax code. The federal code plus IRS rulings is now 70,000 pages long. The code itself is 16,000 pages. The statist French, for example, have a tax code of only 1,909 pages - only 12% as long as ours. And then there are countries like Russia, the Czech Republic, Estonia that have innovated and moved to a flat tax, with considerable success.

You have to understand, complexity equals corruption.

When John McCain was still a raging reformer, he used to point out that the tax code was the foundation for the corruption of American politics. Special interests pay politicians vast amounts of cash for their campaigns and in return they get favorable exemptions, credits or loopholes in the tax code.

In other countries this sort of bribery takes place underneath bridges and with cash in brown envelopes. In America it is institutionalized and legal but it is the same thing: Cash to politicians in return for favorable treatment from the government.

The U.S. tax system is not simply corrupt, it is corrupt in a deceptive manner that has degraded the entire system of American government. Congress is able to funnel vast sums of money in perpetuity to its favored funders through the tax code without anyone realizing it.

For those who despair at the role of money in politics, the simplest way to get the corruption out of Washington is to remove the prize that members of Congress give away - preferential tax treatment. A flatter tax code with almost no exemptions does that.

The simplest fix to our tax code would be would be to lower the income tax dramatically, lower the corporate tax, and instead raise revenues through a national sales tax, or a value-added tax (VAT).

The U.S. is the only rich country in the world without a national sales tax. Germany has one at 19%, Britain at 20%, Korea at 10%.

What’s the appeal of a consumption tax?

First, it is efficient. Most studies, including one by the Internal Revenue Service (IRS), suggest that the federal government loses several hundred billion dollars a year to tax fraud. This is much tougher to pull off with a consumption tax. Second, it provides the government with a more stable form of revenue than income taxes. Income taxes fluctuate greatly between boom and bust years. Third, American’s consume too much, often using credit and leverage to do so. A consumption tax would moderate this behavior. Government will always get less of a behavior it taxes and more of what it subsidies.

Ironically, the heavy reliance on income taxes makes the American system more progressive than those in Europe. The federal government gets about 43% of its total tax revenue from taxes on individual incomes and profits, compared with only 29% in Germany and 22% in France. The balance for France and Germany comes from the VAT, which is highly regressive. One recent OECD study showed that the top ten percent in America pay a larger share of total taxes, 45.1%, than do the top ten percent in any of the 24 countries examined. In Germany they pay 31% of the taxes, in France 28%.

But the best thing about tax reform is that it kills corruption. So if you ask me what kind of tax code I am in favor of, I am in favor of almost any new tax code that fulfils one requirement: It should fit on two pages.


soundoff (439 Responses)
  1. Jonathan

    Tax collection should be left entirely to the states. As such, the new federal tax code would read: Each state, district, territory or other subdivision of the United States shall pay monthly proportional to the number of US representatives (minimum 1for unrepresentated areas).

    This allows Texas to collect via property tax, California by income tax, and another state to collect by a sales tax. may the states choose wisely.

    March 25, 2012 at 2:42 am | Reply
  2. Herby Sagues

    Exclude food (which IS an excemption, but a very rational and effective one at making a progressive system) and we are game with a national flat sales tax and no income tax for persons (income tax for companies is a different subject, and it should be flat, with no exemptions).
    But that won't fly, as many people would be benefitted by the plan as they would be hurt, so it is a politically impossible move.
    A more efficient roadmap would be to close all loopholes and have to negotiate every single one that needs to be reopened in a public, open process. We would end up with tons of loopholes but only a tiny fraction of those that are there today.

    March 25, 2012 at 3:09 am | Reply
  3. J.B.

    I cannot even understand the grammar of some of these comments. Perhaps we need to start investing again in education with some of this tax revenue, less any argument will be one of incoherence.

    March 25, 2012 at 3:54 am | Reply
  4. dkinabq

    Question about a VAT: If I decide to pay more for a product made in the US, I would pay more tax on it, right? How does that help keep jobs here in the US?

    March 25, 2012 at 3:59 am | Reply
  5. Saber

    There are some really crap calculations here! Really? I'd give ANYTHING to pay ONLY 15% of my income to taxes. The average American pays more than 15%! Payoll including the Social Security TAX, California State Income Tax, IRS, and State Disability Insurance TAX, all of this equates to nearly 20% of your income directly off the top of your paychecks every month. Then lets do a little more here to show you how much you REALLY pay in taxes, (Legalized Extortion)! Sales Tax: 8.25% on the dollar. Federal Fuel Tax: 28 Cents per Gallon. California Fuel Tax: 37 Cents per gallon + 8.25% Sales Tax. DMV TAXES and FEES average is about $200.00 per vehicle, per year. Sales Tax @ 8.25% for Cable, Phone, PG&E, (plus their user fees). By the time you add up how much TAX you actually pay to your relative Government it's really a wonder that you have anything left to actually save and live on. Your total taxes per month is closer to 50% of your income, and at my last figure is actually closer to the 60% range. And... I really have to laugh. Our Governments are having a hard time finding money to fund their services? Bahh Humbug! They need to be chopping some of those 6 Digit Salaries at the top that are over $150,000.00 per year, and placing that saved money back into the tax reserves! Nuff Said, do your math!

    March 25, 2012 at 4:04 am | Reply
  6. shazaam

    Really? So the article is seriously suggesting that the way to improve taxation in America is to move to a flatter tax (more regressive), and consumption taxes (more regressive).

    Zakaria, I find your foreign policy articles thoughtful and interesting. I find this article incompetent and simplistic. You aren't an economist, and your analysis is beyond superficial.

    Actual dollars and cents matter to real people in the real world. A 2 page tax code that can't incentivize upwards mobility might "solve" the problems you find important but I don't think it's going to put food on the table of a poor family.

    March 25, 2012 at 5:49 am | Reply
  7. pablo

    The current tax code amounts to welfare for the rich.

    March 25, 2012 at 6:13 am | Reply
    • Terry

      And suddenly Mitt Romney's wife will have to pay tax for her two (2) Cadillacs. And she will not be able to write-off the $4 Million annual gift to the Mormon Church.

      March 25, 2012 at 7:50 am | Reply
  8. Jack

    Hey Zach.. you need to toe the CNN line.. they are zealots for Obamba.. you just spouted mire anti Obamba rhetoric.

    March 25, 2012 at 6:24 am | Reply
  9. Benedict

    The issue of a better tax code could be tied to the recent bipartasan wars in Congress. Obama has asked for an reduction in the loopholes for corporate America and the GOP( especially Tea Party loyalist ) have vehemently opposed this. If the tax codes were revamped,wouldn‘t that go against conservative beliefs the government should free reign to business and not interfere?!

    March 25, 2012 at 6:30 am | Reply
  10. Sid Airfoil

    I'm not sure a flat tax with no (or only a standard) deduction would be that regressive. If we also tax income from dividends, capital gains and inheritance at the same flat rate as salaries, it would increase the rate paid by the Romney's of this country, unless the rate could be lowered to less than 15%. And wouldn't that be nice!

    Sid

    March 25, 2012 at 6:37 am | Reply
  11. jboh

    If all the exemptions, loopholes, and other exceptions were removed from the tax code, it would be simpler and shorter. How many pages deal w/tax breaks for a couple dozen sugar beet farmers dating back to the Cuba embargo; a couple dozen Idaho wheat farmers going back to Russian grain sales; a couple dozen oil drillers dating back to the Arab oil embargo? I don't like the VAT(so-called fair tax). It's European.

    March 25, 2012 at 6:56 am | Reply
  12. Charlton Heston

    "One recent OECD study showed that the top ten percent in America pay a larger share of total taxes, 45.1%, than do the top ten percent in any of the 24 countries examined. In Germany they pay 31% of the taxes, in France 28%."

    This is also deception. US has the widest income gap of any of those countries. Therefore the top 10% should pay a higher percetage, which is their fair share. "Fair share" means their tax rate is according to their ability to pay (contribute). If the top 10% have 45% of the personal income, they should pay 45% of the personal income taxes. If that means a tax rate of 50%, that's the rate that they should pay.

    March 25, 2012 at 7:38 am | Reply
  13. Terry

    Two Page Tax Code: Sorry, the Republicans will never allow a straight forward tax on people like Romney and the 1% Club.

    March 25, 2012 at 7:48 am | Reply
  14. Charlton Heston

    The top 10% should pay(contribute) personal income taxes at a rate that they have the ability to pay, at least in proportion to the percent of the country's total personal income. However, their share of total taxes should be determined by their gross income, not taxable income.

    The deductions and loopholes are highly political. Take the marriage penalty for example. About twenty years ago, the tax rate for married couples was higher than for singles. This was because of a practical purpose. Married couples lived together and shared in the cost of the home and many other expenses. So they had more ability to contribute to the government. Then politicians noticed that people were living together, without getting married, to avoid the "marriage penalty". Politicians then got on their soap boxes and promised to eliminate the " unfair" marriage penalty.

    Now the situation is reversed. The marriage penalty is now the "singles penalty". Singles pay a higher rate than married couples. How is that fair? How does it relate to the original married tax rate, where it was assumed married couples have more ability to pay? Does it mean that singles now have more ability? No! It's entirely political and fueled by deception, popular opinion, scams, and market-based journalism.

    March 25, 2012 at 8:00 am | Reply
  15. TAJ

    This is EXACTLY what Paul Ryan and the Republicans have proposed.

    March 25, 2012 at 8:26 am | Reply
  16. paofpa

    Fareed,

    You have been reading my comments I been writing for years. But remember, the best is the “VAT’. Also, do not let the ones who will say, “Our Income Tax actually allows the world help pay our taxes”, interfere. Prepare and make them look stupid.

    March 25, 2012 at 8:27 am | Reply
  17. Charlton Heston

    The "Fair Tax" http://www.fairtax.org/site/PageServer?pagename=HowFairTaxWorks is a scam.

    It's based on the notion that "fair" means the same tax rate everyone, close to a flat tax. This is regressive and is a phony definition of the fair. Fairness based on the same tax rate (income or consumption) for everyone, even with the rebates, is pure deception. It's shamefull that politicians prey on the public's ignorance by trying to convince us that just because the percent numeral is the same for everyone, that it follows that it is fair.

    The only fair system is one where people pay according to their ability to pay. This means a low rate for low incomes and a high rate for high incomes. Deductions, exemptions, and other loopholes should be delt with so that the tax rate reflects the ability to pay personal income taxes. If the top 10% have 45% of total income, they should pay 45% of total personal income taxes. That would be fair! "Fair Tax" doesn't approach this. The Fairtax web site tries to justify their theory by claiming that the revenus will be the same as with the current system. It completely ignores the regressivenes, where the rich will retain more disposable income and the middle class will retain less.

    March 25, 2012 at 8:30 am | Reply
  18. SleepsWithCats

    Mr. Zakaria, the problem facing America today is not the complexity of the tax code, but what that complexity serves: the increasing concentration of wealth.

    The concentration of wealth is the cause of all our problems.

    A tax code that does not address the concentration of wealth is simply part of the problem.

    A flat tax contributes to the concentration of wealth.

    A progressive tax, which will essentially cap income and wealth, is what is needed.

    March 25, 2012 at 8:30 am | Reply
  19. snowdogg

    "The U.S. tax system is not simply corrupt, it is corrupt in a deceptive manner that has degraded the entire system of American government."

    The first and best reason for tax code reform.

    March 25, 2012 at 8:30 am | Reply
  20. Hannibal7

    Fareed Zakaria... I find it hard to believe that I agree. The current tax code is nothing but a scam. A flat National Sales tax is needed... ZERO income tax. We are a consumer society so lets tax at the point of consumption. Let the savers save with a whole pay check and let the millionaires pay taxes on their jets and yatchs. Penalizing and demonize folks who actually make money in this world economy is no way to run a country. A progressive income tax is the worst kind of tax as it gets progressively higher and puts unfair tax burden on the top end earners. It's not their fault they make money... do we all not want to acheive success?... you get to a point where the earners would rather earn in other places and this pushes foriegn invest away from the U.S.A. and makes U.S. investorts look for havens.

    March 25, 2012 at 8:39 am | Reply
    • Charlton Heston

      Income tax is not a penalty. It's a contribution to government that is needed to secure freedom, health, saftey, etc, for society. This contribution is largely determined by a democratic process in USA, which partly determines it's fairness. Rate-based fairness is phony. Those with ability to pay more should pay more.

      March 25, 2012 at 8:51 am | Reply
      • pbcrabshaw

        right on brother!

        March 25, 2012 at 9:36 am |
      • Hannibal7

        Bunk. Big government Nanny State Bunk.

        March 25, 2012 at 9:55 am |
      • Don

        Just like your payment to the mafia for them to not torch your business is a contribution.

        March 25, 2012 at 12:33 pm |
  21. Charlton Heston

    "Fairtax" completely ignores its regressivenes, where the rich will retain more disposable income and the middle class will retain less. What's fair about that? If Zakaria wants to do something useful, he needs to expose the DECEPTION of rate-based fairness.

    March 25, 2012 at 8:45 am | Reply
  22. punisher2000

    Why lower income tax? Eliminate it all together. Replace it with a Value Added Tax. Do away with IRS no longer needed employees. This would eliminate all loopholes, be a totally flat tax, and make the rich pay a more fair share. Since they buy more, they pay more. The very poor would get stams with which thys pay a reduced tax, only until they get themselves out of the rut through training in technology. We save money, help the poor get better jobs, help the industry with a better labor force and eliminate a bad tax code. Farid: why so timid? Why not go all the way?

    March 25, 2012 at 8:48 am | Reply
    • Steveb

      I would echo disbanding the IRS, if another tax collection method is used. However, I don't think any politician would want to be a part of laying off the bureaucracy that is the IRS. Those lay offs would add to unemployment numbers... bad for reelection. Are there enough brave souls in Congress to bite that bullet? Maybe not now, but if we vote in ones who pledge to do so, maybe by the time our kids have kids we won't be zoo overburdened by complexity... it's a dream, huh?
      I worry that even a revised simplified code will only become bloated over their lifetimes.

      March 25, 2012 at 11:15 am | Reply
      • Steveb

        sorry, new keyboard

        March 25, 2012 at 11:21 am |
  23. Tom

    Actually, I don't care how many pages are in the tax code, the part that burns me is that the gummint already gets copies of absolutely every report I get (W-2, 1099, etc). They already know absolutely everything they need to know to compute my taxes, so why am I required to do it for them, just so they can nit-pick and say I did it wrong in case something doesn't match? I just want to send in one of those postcards Ronald Regan talked about that says "Yep, you know everything – I had no additional sources of income you don't already know about".

    March 25, 2012 at 9:14 am | Reply
    • Optimus Prime

      Tom,

      They need you to verify that the W-2 is true and correct. The system is self-assessment.

      What you and everyone else needs to understand is what was written in the Current Tax Payment Act for withholding at source.

      March 25, 2012 at 11:49 am | Reply
  24. palintwit

    Ignorant people should be taxed at a higher rate. They can start with Palin and her merry little band of baggers.

    March 25, 2012 at 9:31 am | Reply
  25. Galtha58

    Do we really want to copy the European systems? They are going broke and bailing each other out. The VAT tax is a ripoff IMO and regressive. So, Fareed proposes that we copy it? I live in Washington State and we have a sales tax and property taxes but no income tax. The politicians here keep saying that an income tax is more fair, balanced and progressive than our sales tax is. Truth is they just want more revenue. But the people keep voting no to a state income tax here. Some form of flax tax might be OK but the VAT tax is a very bad idea. Usually proposed by those in government that really just want more of the average citizen's money.

    March 25, 2012 at 9:43 am | Reply
    • Galtha58

      I forgot to mention that in our neighboring state, Oregon (to the south of us) they have an income tax but no sales tax. So, their politicians keep saying that they need a sales tax because their income tax is unfair and does not produce enough income during downturns in the economy. Many in our state see the irony these opposite arguments between the two states. Truth is both states would like to have an income tax and a sales tax. More revenue is really what they want. I doubt the legislators and that concerned with fairness.

      March 25, 2012 at 9:50 am | Reply
  26. Wizard1234

    The principal problem with a VAT (national sales tax) is that when levied on necessities (food, clothing, medicine, fuel) it is terribly regressive unless some sort of exemption process based on income is applied, thereby negating much of its possible benefit.

    March 25, 2012 at 9:47 am | Reply
    • George Hunt

      Bingo. Necessities have to be accessible and affordable to all; how to make that happen with the least interference from government is a tricky question. VAT is very appealing to me if this concern can be addressed intelligently.

      March 25, 2012 at 3:12 pm | Reply
  27. Mark

    Seldom do I agree with what Mr. Zakaria has to say, but he finally gets it right. The US must move to a consumption tax, a national sales tax, and abolish the FIT. We must find a way to capture the unpaid taxes and stop putting in place killer taxes on certain industries. And giving away money to those who donate funds to the criminals......er I mean politicians.

    A national sales tax is so much more efficient. Productivity would increase greatly as we eliminate the need for tax lawyers and many accountants. The IRS would be reduced by 70%, and April 15th would disappear as well.

    Have you ever stopped to think why we file taxes in April and vote in November? If we voted in May, one month after filing our taxes, we would never vote for the worthless bums in office. With elections in November, seven months after we had to pay taxes, we have mostly forgotten about the gross amounts that we pay.

    We must move away from the FIT and to a simple national sales tax.

    March 25, 2012 at 9:51 am | Reply
  28. michelle

    I'm not in favor of a national sales tax in general, as I think the last thing the government needs is more money to waste. However, I do agree with Fareed that we need a massive overhaul of the tax code and I would be willing to accept a national sales tax if it was part of a much simpler tax code, so long as it did not significantly increase my taxes in general. For example, if we were to replace the income tax with a national sales tax of say 15%, that would be fine with me. But if we are going to keep the current tax system and then add a national sales tax on top of that, no way!

    March 25, 2012 at 9:54 am | Reply
  29. Rick

    Ah, one of the liberal left propogander machine mouthpieces spews his dribble once again.

    March 25, 2012 at 10:11 am | Reply
    • palintwit

      Rick... typical bagger. Doesn't know how to spell. " PROPAGANDA "

      March 25, 2012 at 10:19 am | Reply
    • palintwit

      Please see my post above suggesting that ignorant people be taxed at a higher rate.

      March 25, 2012 at 10:21 am | Reply
  30. Bob

    I have never seen such an uninformed article from Zakaria. Progresive taxes built this country in the 50's and 60's. Quality of life and progressive tax systems go hand in hand. Suggesting that countries in Europe are more regressive demonstrates absolute ignorance on the subject.

    March 25, 2012 at 10:16 am | Reply
    • Don

      How much better would life be if we weren't stolen from (taxed)?

      March 25, 2012 at 12:32 pm | Reply
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