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Posted: April 07, 2009

A tax system Armageddon is near

In the future, the U.S. tax code will be an example of what not to do

Thomas Frey

In the movie "The Day After Tomorrow," survivors stranded in a library are easily persuaded to burn the multi-volume IRS Tax Code to stay warm. In this fictional scenario, the question one might ask is: Why did we wait until the end of the world?

In 2003, I wrote a paper titled “The Coming Collapse of Income Tax,” in which I predicted that our current income tax system would collapse within 10 years. My prediction stands, even as the deadline nears. I am still firmly convinced the collapse is near.

Tax expert Calvin Johnson testified before the U.S. Government Affairs Committee in 2003 taking to task the relationships of public accountants and the tax shelter industry. Johnson, a law professor at the University of Texas at Austin told the Senate panel that writing “tax shelters has done real damage to the tax system and allowed many taxpayers who should pay income taxes of 35 percent to pay 10 percent.” The tax base has eroded as a consequence, he noted.

The tax system is yet another system that has been so bastardized from original form, it bears no resemblance to a system at all. It is a jumble of instructions, a wilderness of tangled vines only the bravest of us would dare venture into without software or a battery of lawyers and accountants.

What’s more, the tax system is drastically out of step with the rest of the world. As business continues to shift from national to global in scope, the observable trend toward an ever more complicated taxing formula is doomed. The government’s round-the-calendar attempts to bring ever greater precision to extracting the perfect, yet optimal amount of taxes from every individual to achieve some vague notion of fairness, flies in the face of logic and world trends.

If taxes were paid through an automated system built around seamless and invisible processes, the system might have a chance to survive. However, the current adversarial model, which is based on minutely detailed tax codes backed up with forced compliance, is a system that can’t last. Small businesses, in particular, await this day.

A view from the future

People in the future will look back at this era and use our tax code as an example of the ultimate stupid system.

The IRS Tax Code ultimately will take its place alongside phrenology and alchemy in insipid history. Most embarrassing for the several generations that have endured the growing encyclopedia of code is taxpayers ultimately pick up the cost of the multi-billion industry devoted to divining its meaning. We had not come far, historians will say. Before the invention of the wheel, cavemen carried everything on their backs. So do we.

The all-consuming nature of tax preparation has been grinding the gears of the economy for decades. It is a major obstacle, stifling business and commerce and sucking talent and intellectual bandwidth into an irretrievable bureaucratic black hole.

Few believe – horror of horrors – if their most recent tax filing were put to severe scrutiny that they would emerge unscathed. And therein lies the problem. Income tax has become an adversarial relationship between government and taxpayer. Taxpayers are constantly running for cover from the latest barrage of mortar shells containing a labyrinthine complexity written in unforgivably obtuse bureaucratese.

A tax system Armageddon is near.

The inevitability of system failure does not portend the end of taxes, though. Government will need money to operate. Our ability to function within a monetized society is dependent upon some system for generating money for the government’s coffers.

I am not predicting which new kind of tax will emerge from this, only that it will happen.

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Thomas Frey is the executive director and senior futurist at the DaVinci Institute and currently Google’s top-rated futurist speaker.  At the Institute, he has developed original research studies, enabling him to speak on unusual topics, translating trends into unique opportunities. Tom continually pushes the envelope of understanding, creating fascinating images of the world to come.  His talks on futurist topics have captivated people ranging from high level of government officials to executives in Fortune 500 companies including NASA, IBM, AT&T, Hewlett-Packard, Unilever, GE, Blackmont Capital, Lucent Technologies, First Data, Boeing, Ford Motor Company, Qwest, Allied Signal, Hunter Douglas, Direct TV, Capital One, National Association of Federal Credit Unions, STAMATS, Bell Canada, American Chemical Society, Times of India, Leaders in Dubai, and many more. Before launching the DaVinci Institute, Tom spent 15 years at IBM as an engineer and designer where he received over 270 awards, more than any other IBM engineer.

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