 Hi, I'm James. And I'm Anthony. And this is Words and Numbers. And Ant, it's that special time of the year, April 15th coming right up on us, the year that every productive member of American society starts to lose his mind because he realizes that he has a job so other people don't have to. That's right. My daughter lost her mind this time for the first time. She's in graduate school and called me up saying, oh my God, she owes the tax man $90. She said, I thought taxes are things I'm supposed to get back on April 15th. She owes $90 poor snowflake, poor snowflake, I owe about a year's salary. Oh, right. This seems that whatever I made this year, I'm just going to have to write a check to Uncle Sam and send it along because he seems to come after me more every year. Yeah. Well, this is what we do, you see, you know, when you start to finally pull yourself out of a hole and, you know, join the middle class and start to accelerate a bit, you become Pete, you know, one of the rich and we're now going to penalize you with this progressive tax system. Yeah. No, it's a lonely feeling every year around about this time when you start adding up columns of numbers and deciding what has to be done. But truth be told, I've actually paid another human being to do this on my behalf for a number of years, mostly so I don't have to look at it and think about it too much. But the more complicated your tax situation gets, the more likely you are to hire another human being to do your taxes for you and I know you've had a similar experience just this past year. Oh, I did. Yeah. So, you know, I mean, but you get, you know, multiple children and you've got a mortgage and deduction. You, you know, built some stuff on your house and some of the windows you put in are energy efficient. So they come with tax deductions and all of this nonsense. And when you're done, look, I've got a PhD in economics. I didn't know what the heck was going on. I had to hand the whole thing over to somebody, pay this guy multi hundreds of dollars to do the taxes for me. There's something fundamentally wrong when a PhD in economics can't handle the taxes. You know nobody else can. It's absolutely crazy because here we sit two PhDs who have absolutely zero chance of completing their tax forms correctly. Zero chance. There's no way I could do it. And in fact, the IRS can't really help you because when you call the helpline, you get incorrect answers a majority of the time. Right. And you're still liable for doing whatever it is you do, even though the IRS itself might give you faulty information. Yeah. No, it's a, it's a strange and wondrous place that we've come to in terms of taxation. And you hit on something a little, a little while ago that I think is exactly correct. Our taxes have become needlessly complex. And you know, Phil Gramps, when he was senator down in Texas, used to walk around when he was campaigning with a little postcard in his hand. And he would say, this is going to be your new tax form. And it was just, you know, this was my income. This is my standard deduction. This is the percentage of that number. This is my taxes. Four lines. Nice and simple. Right. And it was a standard flat tax scheme, which, you know, I tend to be rather in favor of in the grand scheme of things. And he got exactly nowhere with this, because the, the lobbying pressure from the accountants who would all be out of work, incidentally, if we simplified the tax code, we'd have no need for the vast majority of these people. H&R Block would be a thing of the past. Sure, corporations would still need accountants and what have you. But the vast majority of us could actually do our own taxes. Yeah. And it's more than that. It's not just the, the accountants. There's tax lawyers. There's tax planners. There's the retirement people who, you know, fall in there as well. There are multiple industries built around the fact that the tax code is complex. Yeah, that's right. It's a giant, nonproductive portion of American economic life is dedicated solely to the proposition of paying your taxes. Right. And you, you've heard people joke about, you know, the government paying people to dig holes and then other people to come along and fill them in. That's exactly what the tax code is. It's not a physical hole, but it's a mental hole. We pay people to come up with this convoluted tax system. And then we pay other people to walk us through that convoluted tax system so we can end up at a place that we could have ended up with simply by filling out that four line postcard that says, here's your income multiplied by this. That's what you owe. Right. And the obvious question that presents itself is why did that have no chance in hell of ever getting off the ground? And it didn't, right? We all saw that and said, that's the most sensible thing I've ever seen. Of course, it will never work, which is the refrain we often come to when we talk about what the government's up to. And it comes to the point, I think, and I'm willing to go this far, that it's in a group of people's vested interest to keep things as complicated as they possibly can. Yeah. The more complicated it is, the harder it is for you and me and people like us to figure out what's going on. The voter is in the dark. And what ends up happening is the politicians among us use the tax code as a spoiled system, right? We can give this to you and this to you and this to you and we'll take it from these people and they'll never notice. We'll just bury it under lines and lines and lines of legalese and jargon. And what ends up happening is a tax system emerges that's so Byzantine that no one can understand it anymore. Right. It's directly to the advantage of the politicians who put it together. Yeah. I've come to think of it as the tax lottery. Every April 15 rolls around and maybe I'll get some money back. Maybe I'll owe some money. I have absolutely no idea. It's the tax lottery. Yeah. Right. And we pile on to this, this scheme, this hair brain scheme of withholding, right? So you get your check and they just take the money out and they hide it on you. And like a fool, you wander around thinking you never had it and that it was never yours. Right. But it was. You're thankful to the government when they give it back to you. It's your money. Yeah. That's just crazy. The honest system here would be to stop doing that. And at the end of the year require everybody who owes to write a check. Right. Right. And then you have perfect transparency. Then you know what you paid. You never become acclimated to lower paychecks. You know what you were paid by your employer and you know how much the government is taking. Yeah. Yeah. That's exactly the right way to do it and it's exactly why politicians will never settle for that. Because you would see. That's right. You would see a groundswell of support for dramatically reduced government if people had any idea how much they're paying. And we're just talking about federal taxes here, right? It doesn't include state taxes, local taxes, property taxes, sales taxes, estate taxes, capital gain, all of that nonsense, right? If you had to write a check for all of that. Federal would grow to a newfound appreciation for what we describe as the government problem. Yeah. No. And I think they would have a newfound appreciation for fiscal conservatism. Right. Right. They would have a newfound appreciation for fiscal responsibility, right? We would only want the government to do that which it could afford to do. And that's a question we don't ever ask now. Instead of asking what can we afford, we always begin with the question, what is it that we want? Sure. And then we figure, well, and then the miracle will happen and there'll be some way to pay for that. Well, if we approached this as rational human beings would, right, asking what is everybody going to owe at the end of the year? And if you present that number to them in a manner in which becomes painfully obvious, right? Painfully. Right. You get some different sorts of behaviors. Right. You get different behaviors on the part of the electorate, which would mean immediate different behaviors on the part of the elected officials. And that's exactly why the elected officials choose instead to play a shell game. Yeah. Yeah. This is absolutely right. If you want an image of that, picture how your behavior changes when you have a cell phone plan that charges you by the minute versus one that's a flat fee, right? It's the same kind of thing. When it's by the minute, you're very careful, right? You're going to reserve how much you use this thing. And it's a flat fee. You don't even see this. It's at the end of the month you pay something, right? It's the same amount all this time. But if you do the math, you actually end up spending more on that flat fee thing. And part of the reason is because you're unaware of what it is you're doing. And that's what we've got here. A situation that's become so complex, people are completely unaware of what it is they're actually paying. And as we often say at times like these, incentives matter. Right. Right. So what do people have to look over the shoulder of the elected ruling class? Those incentives matter too. And if people were forced on December 31st to do the four lines of math and then to go write a check and mail it to the IRS, instead of this shell game that we play every year where we just kind of siphon it out of your paycheck in dribs and drabs and hope that you never notice that the amount of money you make is not the amount of the number of hours you work times the amount you get paid per hour, not even close, right? The minute we stopped doing that, we would get a radically different outcome. And it would in fact be a better outcome. But it's an outcome that doesn't allow politicians to curry favor. I've heard the argument in somewhat compelling that, well, but if we did it like that where everybody wrote a check to the government on April 15th for the full amount they owed, there's a lot of people who simply would find that they'd spent the money throughout the year and they've got nothing. And now the IRS is going to come and take them to jail. Imagine that. Yeah, but notice the market has provided ways around that problem in other similar situations. For example, Christmas, right? So Christmas comes around once a year just like April 15 does and you've got to spend a lot of money just like you do on April 15. And what's happened? Banks offer Christmas club accounts. So we the bank will take some money out of your checking account every month and put it in this Christmas club account and when Christmas rolls around, we'll give it back to you and you can use it to pay for your Christmas presents. You could imagine the same thing happening with banks and taxes. The banks will take out a little something every month and come April 15th, they'll hand it back to you and say, go pay your taxes. Yeah, I would far rather just see people not have the money to pay it. I really would because after one year of that kind of convulsion, we would be on a far more sustainable economic path, far more sustainable. And what we've ended up with now is a ballooning economic catastrophe. It's in the making and it's in the making precisely because politicians get to spend lots and lots and lots of money and they're not really held accountable in any meaningful way over that. So this would be, I think, the easiest, cheapest, most obvious solution to that problem. Yeah, everybody on notice that this is what this costs. And as with all cheap and obvious solutions regarding the government, you're guaranteed that it's not going to come to pass simply because it is cheap and obvious. Yeah, no, I suspect that's right. But I also suspect that given our economic problems as we take a look at the big picture right now, that something like this is going to come to pass sooner or later simply of necessity, that sooner or later we'll have no choice and then it will be actually a better day from that point forward. It's worth underlining that this is not pie in the sky, right? It is quite easy to pull this off. And the reason we know that is because if you look at federal tax revenues over the years, they're always about 17% or 18% the size of the economy, right? So whether in times when economic times are good or economic times are bad or tax rates are high or tax rates are low or taxing capital gains or taxing corporations, none of that matters. The federal government collects a constant 17% or 18% of the economy as tax revenue. Well, if that's the case, let's stop all this nonsense about deductions and exemptions and 150 page tax returns, just charge everybody 17 or 18% of their income from all sources combined and you'll end up with the same number that we get now. Yeah, not only would we be done with it, we would eliminate all the extraneous expenses like my accountant. All of the time. So I would actually be, I would actually be to the good even though the government kind of flat line straight across. Absolutely. Your accountant's not going to be happy with it. No, he's not going to like this at all. Perhaps we can have a federal, no, wait, no, no, no, I'm that happy note. That's it for this week, but we'll be back next week to cover something even more exciting than taxes as if you could think of such a thing. And in the meantime, feel free to click through on fee.org and watch their other video offerings below. See you next week, James. See you next weekend.