All Commentary
Sunday, August 1, 1993

A Reviewers Notebook: Costly Returns

Despite the reassurances of James L. Payne in his Costly Returns: The Burden of the U.S. Tax System (265 pages, $14.95) that the IRS is not really out to get anybody, there is no way to dodge worry about the tax collector. The Institute for Contemporary Studies, Payne’s publisher, may say that the Constitution has its guarantees against the seizure of bank accounts, salaries, houses, and cars without due process of law, but the guarantees are meaningless if you can’t survive an audit. Good intentions won’t save you from sudden changes in the tax code. Nor will they counter stupidity.

The IRS happens to be recruited from the lowest third of our law school graduates, which would seem to guarantee stupidity. The recruits are certainly not error proof. Congressman Christopher Shays, a Republican from Connecticut, upon listening to details about the error rate at a GAO hearing, said, “I am not used to hearings where I learn that 47 percent of all written response to taxpayers is incorrect, or that I learn that 36 percent of the non-computer kinds of responses, the personal contacts over the phone are incorrect. It just raises some questions in my mind that I haven’t been able to sort out yet . . . if we can make such a colossal number of mistakes, how does that translate in the other things we haven’t looked at? Here we are saying it is close to 50 percent . . . half of what we do are errors.”

Payne estimates that Americans spend more than five billion hours annually on tax compliance. It is theoretically voluntary, but if you take anybody’s word for that you are crazy. If you choose freely not to pay taxes, jail awaits. Voluntary compliance automatically means less money for investment. The disincentive effect of a tax destroys jobs.

Payne has a suggested cure: Let the government pay an audited person for the time he spends being investigated. When, in a rough analogy, the government seizes land to build highways, it forces policy makers to recognize the true cost of highways and therefore discourages them from building as many as they otherwise would. This suggests that there wouldn’t be so many audits if the tax collector’s money were used to finance them.

Oliver Wendell Holmes once said he didn’t mind paying taxes, for “they bought him civilization.” Payne turns Holmes around. “Taxation,” says Payne, “may have been a minor nuisance in Oliver Wendell Holmes’ day, in 1904, long before the adoption of the graduated income tax. Now, grappling with a full-blown welfare state tax system we are left pondering the converse of Holmes’ dictum.”

Actually, Holmes was dead wrong. Taxes are the price we pay for being uncivilized. There is a violation of conscience involved in most tax payments. Taxes are no longer seen as funds needed for comprehensive rational purposes but as part of a system of rip-offs needed to pay for special interests.

“What is a tax?” Herbert Stein asked in The Wall Street Journal. “A tax is a financial burden levied by some citizens or residents of the country to provide benefits to others.”

We have a “culture of taxes” that militates against tax repeals. At a Congressional Tax Administration hearing of a House Ways and Means Subcommittee, 17 officials for the IRS showed up to have their say, but there was only one representative from the American Bar Association.

  • John Chamberlain (1903-1995) was an American journalist, business and economic historian, and author of number of works including The Roots of Capitalism (1959). Chamberlain also served as a founding editor of The Freeman magazine.