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 (440 Responses)
  1. olepi

    1) Tax all income equally, capital gains at the same rate as other income
    2) Put a tiny tax on stock transactions
    3) Eliminate tax "holidays" and off-shore tax breaks
    4) Eliminate tax welfare for huge corporations, like Boeing and the oil companies
    5) Allow the Bush tax cuts for the rich to expire

    Then we can simplify the tax codes.

    March 25, 2012 at 2:46 pm | Reply
    • Patrick

      Simplicity may be fine for the simple minded but this is a complicated matter not to be taken simply.

      March 25, 2012 at 2:55 pm | Reply
  2. oldesalt

    So if the U.S. switches to a consumption tax rather than an icome tax, what happens to us retired folks who paided income taxes on the money we saved for retirement. We will be taxed again as we spend it.

    March 25, 2012 at 2:48 pm | Reply
    • Patrick

      You are so funny habibi.
      Simply too funny.

      March 25, 2012 at 2:56 pm | Reply
  3. Aaron

    One thing that concerns me with a VAT or any form of Federal Sales Tax is that since I'm retired most of my income comes from money that I have already paid Federal Income Tax. Therefore I would be subject to double taxation at a time that I can hardly afford it.

    March 25, 2012 at 2:49 pm | Reply
    • jack johnson

      I agree, but it shows they care nothing about seniors!

      March 25, 2012 at 2:57 pm | Reply
  4. jack johnson

    Why would anyone listen to Fareed's advice? Don't we have enough nuts spouting off about things they know nothing about (He is right in line with Sarah Palin as far as common sense goes).

    March 25, 2012 at 2:53 pm | Reply
    • Patrick

      You are right, let's all go back to Pakistan, Lebanon, Jordan. hehehe....

      March 25, 2012 at 2:58 pm | Reply
  5. D

    The tax code should be one sentence, not two pages. Everyone should pay a flat 15% of their income in taxes, with no deductions. That way, everyone pays their fair share. Then the rich can't complain that the poor pay nothing, and the poor can't complain that the rich find loopholes to get out of paying taxes. I know everyone would complain that their special tax benefits is gone, but that is a sign the system is fair.

    March 25, 2012 at 2:55 pm | Reply
  6. oldesalt

    Thanks Aaron. You worded it better than I.

    March 25, 2012 at 2:55 pm | Reply
  7. oldesalt

    @D... Should everyone pay 15% no matter how many children you're supporting. If your child has a very expensive health problem, should you still pay 15%? without any medical deductions?

    March 25, 2012 at 3:02 pm | Reply
    • Patrick

      Is that what they charge in your home land, Iraq?

      March 25, 2012 at 3:10 pm | Reply
  8. oldesalt

    A flat tax rate would sure hurt charities.

    March 25, 2012 at 3:10 pm | Reply
    • Patrick

      yeah, we would not want to hurt the Red Crescent. If we could not send money to our Jihadist friends, then what the hell are we doing in America.

      March 25, 2012 at 3:13 pm | Reply
  9. Chris

    A flat tax sounds easy and fun, but it raises taxes on the poor and lowers it on the rich. If that is what you are after, fine. The same is true of a national sales or VAT tax. Can you image asking Americans to pay 19% more for everything they buy? Can you say recession? You can make the middle class pay more taxes only if you raise their salaries. Most Americans haven't had a real raise in 30 years.

    March 25, 2012 at 3:15 pm | Reply
    • 2-4-8 Tax Blend

      A flat 5% tax on net wealth would produce sufficient revenue to replace all current federal taxes. For the first time in history we have the technology to apply a wealth tax to rich and poor. Fair enough?
      See more details at http://www.TaxNetWealth.com

      March 27, 2012 at 10:18 pm | Reply
  10. oldesalt

    @ Patrick... If your comments are directed at me, I'm not from Iraq, I'm from Massachusetts. My comments are meant to show how a flat tax can be harmful to some sectors of our society.

    March 25, 2012 at 3:18 pm | Reply
    • Patrick

      Yeah and the rest of the girls you hang out with, they are from Texas?

      March 25, 2012 at 3:22 pm | Reply
  11. R P Walker

    Fareed seems fond of the VAT concept and his argument implied that it would eliminate the corrupt practice of politicians handing out tax breaks for favors. Beware what you wish for. A VAT would become a bank check that Washington politicians would increase every time they had a pet cause needing funding. Secondly, they would be in back rooms trading votes for VAT increases and thus create a new political commodity.

    March 25, 2012 at 7:15 pm | Reply
  12. John Moormans

    I had a common challenge during the past year. The one thing that I would suggest is obtaining a professional to defend you. In the long term it can save you time and cash. You will find there's webpage that's executing assessments on tax relief firms. They’re holding them responsible for their unethical ways. Here is the web page link. http://www.consumertaxreports.org They have also been willing to take recommendations for organizations they haven’t included yet.

    March 26, 2012 at 7:01 am | Reply
    • Patrick

      who is "them" habibi

      March 26, 2012 at 9:00 am | Reply
  13. Marchingon

    Heard your essay (or whatever it was) while on the treadmill so came here to see if I heard right (I did). Everyone knows our income tax system is too complex. However, using that as a cover for pushing your right-wing tax philosophies that would further enrich the very wealthy at the expense of everyone else, is unforgivably partisan. With your lack of logic and unskillful manipulation of numbers, you really need to get a job at Fox News. Either that or CNN should stop pretending it's non-partisan.

    March 26, 2012 at 9:28 am | Reply
  14. Ginsights

    Fareed,
    Don't rely on OECD reports. It's just a club of capitalists.
    That doesn't mean your conclusion is wrong.
    If corporate taxes were abolished entirely the reason, `double taxation' for lower rates (0% / 15%) on dividends and capital gains would disappear. They could be taxed fully. Then people that are in a 10% tax bracket would pay 10%, and people in a 35% tax bracket would pay 35%. With just lowering corporate tax rates we just join the game all other nations are playing.
    The tax code would be greaty simplified implicitly, because many current regulations would no longer be relevant.

    March 26, 2012 at 1:09 pm | Reply
  15. serana

    If everyone gave 2.5% on net income to poor relatives, everyone would be taken care of. By the time people take out deductions, and some don't file, the end result is not more than 2.5% anyways. And people are more willing to give to their own relatives. Those who don't have relatives or choose not to give, can give to the government to pay for government programs, while property taxes and sales taxes can cover the cost of the roads etc. The 2.5 % would be required to be reported and verified.

    March 26, 2012 at 4:23 pm | Reply
  16. PeterP

    Yeah, it is time to squeeze the congress.

    March 27, 2012 at 10:57 am | Reply
  17. bayardwaterbury

    We need more discussion on this. Please get Simon Johnson and David Walker on to discuss their ideas, and the political realities. These men a sane, savvy, have great ideas, and no agendas other than wanting this country to move constructively forward. I love the article.

    March 27, 2012 at 6:03 pm | Reply
  18. John Médaille

    With respect, this is total nonsense. The complexity of the code does not come from the rates (which are a few lines of the code) but from the fact that we tax something called "income" and income is a complex concept. No code that taxes income can be shorter than the rules for determining income, and in the GAAP manuals, that runs to several volumes. We add thousands of pages of handouts, tax subsidies, loopholes for favored friends of the politicians, etc. But that is a separate problem that has nothing to do with the rates.

    March 28, 2012 at 10:06 pm | Reply
    • Art A Layman

      Hear, hear!!!!

      March 29, 2012 at 6:16 am | Reply
  19. qkk

    Estonian tax laws are only some 30 pages. The main point in such law is that everybody unerstand what to do. The law can be described in few sentences. All pay tax 22% if you have income more than minumum taxation rate fift of average wage. All business dividends is also taxated 22% reinvested profit is not taxated. Most of people (more than 80%) will do it in Internet spending less than 30 minutes of time.

    March 29, 2012 at 12:26 pm | Reply
  20. SYRIA SENDING CHEMICAL WEAPONS TO HIZBOALLAH

    50 TRUCKS A DAY CROSSING FROM SYRIA TO HIZBOALLAH ECEVRY DAY SINCE MARCH 1 , ALL THE WEAPONS . CASH COME FROM IRAN AND SHIIA IRAQI GOVERNEMENT, AND THE HEAVY WEAPONS FROM RUSSIA SALE TO SYRIA , SYRIAN SENDING THE WEAPONS TO HIZBOALLAH AS A BACK UP PLAN TO BASHAR AL ASAD RUN, WHERE IS USA , UN AND NATO FROM THIS, THOSE WAR CRIMINALS KILLED MORE THAN 14,000 CIVILIANS TO DATE, WHY IS THE SILENT ....SYRIANS ARE STILL KILLING CIVILIANS DAILY, WHY THEY SEND WEAPONS TO HIZBOALLAH ALONG WITH CHEMICAL WEPAONS WE SEE IT ON THE GROUND EYES WITNESS SEE THAT THE TRUCKS GO AL BEQAA VALY AND SOUTH LEBANON , AND ANY BODY STOP THOSE TRUCKS WILL BE SHOT DEAD....SOME OF THE WEAPONS INCLUDE KATIOSHA ROCKETS, K47, HEAVY GUNS. ANTIAIRCRAFT WEAPONS, ANTI TANKS, MINES, LAND MINES , POISON GAS, AND SMALL UNMAN AIRCRAFTS. SCUDS ETC.....SYRIA MUST BE STOPED AND HIZBOALLAH MUST BE DEALT WITH , IRAN PREPARING THEM JUST INCASE THEY GET ATTACKED.

    March 31, 2012 at 12:59 pm | Reply
  21. Kanageloa

    Build more prisons. More prisons being built employes builders. Built prisons employ guards, parole boards and admin type people. Let the Feds do all prisons that way they spend our money that they'd blow on all sorts of wasteful projects and grants. However, make prisoners make things, repair school buses and federal cars. Let them learn a trade and not a degree.

    March 31, 2012 at 11:00 pm | Reply
  22. Can'tYouSee

    After reading over half of the comments.... Everyone has an idea of what's "right" for America tax-wise, with so much of what's right based on probably iffy statistics and ideas. And that's the problem. We'll never get to an agreement on solving our current Tax Code problem. Every one has an opinion and their opinion is always better than your opinion.

    Instead of arguing the merits of one plan over another, why not simply state what the goal should be for OUR Tax Code? Simplicity? Fairness (blind to how much one makes as well as NO preferential treatments)? Minimize both the regressive and progressive aspects? Cost to accomplish, to implement?

    The real problem isn't the Tax Code per se... yeah, its who we as a nation elect as our Representatives, Senators and our President and the demands that we the voters place on them. Revolutionize the Tax Code and soon enough, "adjustments" will need to made... We're such a needy and whiny nation.

    April 2, 2012 at 10:26 am | Reply
  23. Charles

    It's a constant argument that we should have a 2-page tax code. It's also a stupid argument. There will always be a need for an IRS and there will always be a lot of complexity in the tax code. It's easy to say "flat tax" and think that's all you need. But much of the tax code is concerned with determining what are deductions. Now, you're going to say "but, with a flat tax there are no deductions". That's nonsense. A large percentage of people in this country has small business income they file on their income tax. That would remain. If you have an eBay business and tell a $1000 item, you deduct the cost of buying that item and pay taxes on the profits. I travel for consulting and deduct the travel expenses. As long as businesses and individuals pay taxes, there will have to be rules to define what is the part of their income they pay taxes on. Those rules will continue to be complex since they have to stand up to court scrutiny.

    BTW, I hope everyone knows that "broadening the base" means lowering taxes on the right and raising taxes on everyone else.

    April 2, 2012 at 11:43 am | Reply
  24. Jocuri noi

    I used to be recommended this website through my cousin. I am not positive whether or not this submit is written by way of him as no one else recognize such targeted about my difficulty. You're amazing! Thank you!

    April 3, 2012 at 12:26 am | Reply
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