Happy Wednesday, Everyone! …Unless You Work for the IRS.

The U.S. tax scheme is cumbersome, complex, patently unfair and overdue for significant change.

The argument: Most Americans don’t object to reasonable tax rates to support legitimate functions of government, but the current system is far from reasonable.

WHY IT MATTERS

Chief Justice John Marshall warned, “The power to tax is the power to destroy.” Anyone who has reviewed his or her pay stub or tax return can see how much of their own economic prosperity is lost to high rates and a complex, unfair system. Even calculating and paying taxes is so onerous that the total cost that Americans paid for tax compliance reached nearly $464 billion last year.

We often hear, especially during election season, that nearly half of U.S. households pay no taxes. This claim is misleading. Many of these households still pay payroll taxes for Social Security and Medicare, and virtually all pay sales, use, or property taxes. However, there is a meaningful distinction between these taxes and the federal income tax system. Under the current progressive structure, the top 10% of earners pay about 72% of federal income taxes, while the bottom 50% contribute only 3% at an average income tax rate of less than 4%.

Photo by: Kelly Sikkema (Unsplash)

One of the most controversial features of the tax code contributing to this disparity is the Earned Income Tax Credit (EITC). This is a refundable credit, meaning that if a taxpayer’s liability is less than the credit, the IRS pays the difference as a refund. In 2025, total EITC payments were nearly $70 billion. The credit is intended to support low-income families, but it presents such significant challenges that even its supporters acknowledge them. It disincentivizes additional earning and saving, is vulnerable to fraud, and has variable eligibility requirements. Beyond these issues, the EITC raises ethical questions about the fairness and legality of transferring wealth from those deemed able to “afford” it to those considered to “need” it. It effectively divides taxpayers into net contributors and net recipients.

“If Americans are to regain confidence in their government, reforming a tax system that is both overly complex and widely perceived as unfair would be a strong place to begin.”

The most outrageous aspect of the U.S. tax system, however, is its inefficiency and waste. While government waste is difficult to measure precisely, Americans have little confidence in how their tax dollars are spent. Many believe that nearly 60% of tax revenue is wasted. Some go further, arguing that “taxation is theft” because it is imposed without consent. Our social contract, however, almost certainly permits taxation to fund legitimate government functions such as maintaining order, enforcing the law, and providing national defense. It tends to be the $9 billion dollars swindled in the Medicaid fraud cases in Minnesota, the $312 million in business loans to children, and the $11 million spent to produce a Middle East version of Sesame Street that tends to raise the ire of American taxpayers.

If the power to tax truly is the power to destroy, it is deeply frustrating to see an unfair and inefficient system limiting Americans’ ability to save, invest, and enjoy the fruits of their labor—often in service of unnecessary programs and, at times, direct wealth transfers. If Americans are to regain confidence in their government, reforming a tax system that is both overly complex and widely perceived as unfair would be a strong place to begin.

THE BOTTOM LINE

Another April 15 has come and gone, and with it, another opportunity to rectify the inequities of the U.S. tax scheme. Americans need to muster the political will to overhaul the system before the stress and strain of a broken system destroys American prosperity.