“Not so,” Mr. Lee tells CNN on tax day. The assessment seemingly was set high enough in hopes of encouraging Mr. Lee to file his past-due returns and pay the correct tax with interest and penalties. “Won’t happen,” further retorts Mr. Lee. “I feel badly about the whole thing but I just can’t bring myself to figure out the complexities of the California income tax forms. I hope they will call me and we can agree on some number and I’ll just pay it.”

If Mr. Lee, a businessman with a few rental properties, is confused by the California returns, he is most fortunate not to be doing business in Michigan. The governor’s new Michigan Business Tax, with its mind-numbing complexities and inequities, sets the gold standard for costly tax attorneys and CPAs. Likely the governor’s  State Treasurer has already realized – or soon will – the significant free give-a-ways, tax credits, and subsidies that will be needed to get any prospective new business to buy into the MBT mess, a tax adopted at 2 in the morning by a sleep-deprived (brain dead?) legislature surrounded by dozens of well-paid and wide awake lobbyists.

April 15^th has come and gone for another year and with it the prolific number of blogs and editorial demands for tax change. Mr. Timothy F. Geithner, the new U.S. Secretary of Treasury, will likely offer up some changes (crafted by dozens of lobbyists imbedded in the Beltway) to a tax system already teetering on the brink of collapse from complexities and complications. The system can’t take too many more patches, particular from The Secretary, who recently nicked the Treasury for about $17,000 in unpaid Social Security taxes on his own personal return.  More changes, more complexities, more unfairness is putting the tax system itself at risk. A small patch here or there now seems to be causing a leak somewhere else.

I have been in the tax compliance business, as a some-time teacher and full-time practitioner, since 1967. It is time for our industry, with all of its attorneys, CPAs, estate and tax planners, auditors, etc. to just go away. Shoo…go home. Our tax system doesn’t need a tweak, it needs a hatchet job.

The  hatchet job would eliminate the income tax and adopt a national sales tax on consumption and financial transactions. All of the illegal drug and gambling money that is laundered through our banking system daily would be taxed upon deposit. If Bennie the Bookie decided to get out of the market entirely and go to cash on deposit in the back yard, at some point he will likely spend it. Those front row tickets at the Lakers games must be had. There would be no sales tax on necessities. The national sales tax on other items would be graduated, with luxury items being taxed at a higher rate at the time of purchase. 

The system is already in place to accurately assess and collect the tax. If you are one of the 700 people at Merrill Lynch who had a bad year in 2008 (each only making more than $5 million), you would pay a financial sales tax when you stored your money in your CMOs, REMICS, and all of those other financial products that no one but you can understand. And, at this point we’re not so sure about your depth of understanding, either.

We, as a people, don’t like  to focus on the income side, keep records, disclose salary and perks, keep track of what the person in the next cubical is making, paying or avoiding in taxes. But everyone likes to buy and consume or even invest. There would be no record keeping for Mr. Lee or any other consumer/investor. Bill and Winston, could become close friends, join the local coastal touring society and each drive out of the Mercedes dealership with a new roadster – but each would also be a little lighter in the pocketbook. This way, everyone participates by giving back for our national well-being at a time they are the happiest…at the moment of consumption.

The U.S. Treasury estimates that the amount of unpaid taxes is in the billions, enough to fund the Pentagon’s budget for six months. The department also anticipates that it will get worse this year as more people have to go into a self-employed/cash survival mode. It’s so unfair. 

Consider the following: A middle-aged, self-employed single woman making $50,000 a year pays over $15,000 in taxes while barely able to make the monthly rent payment in a 700-square-foot studio in Brooklyn. Sam Slick, a real estate developer across the river in Manhattan, wants to sell his Park Avenue property for $100 million. Unfortunately, his tax attorney computes that the taxes on sale would approach $35 million, leaving only $65 million for Sam, hardly enough for a down payment on a new estate in the Hamptons. So Sam mortgages the property for $100 million at Bear Stearns, pockets all the money, pays no tax on the loan proceeds and upgrades to a beachside villa in St. Barth’s. Sam croaks the following spring, and before he can even push up some daisies, Sammy Jr. inherits the Park Avenue property. The income tax unpaid on the $100 million is forgiven in the estate tax process. The Treasury Department calls it an estate “step-up” adjustment.  Further, Sammy Jr. falls in love with his father’s young widow (“Wiffels”), defaults on the $100 million non-recourse mortgage at Bear Stearns, takes the rest of the residual estate and hikes off to enjoy the beach with Wiff and the rest of the glitterati.

Sammy Jr. and Wiff may live happily ever after on St. Barth’s, free of U.S. income taxes because of the income exclusion rules for U.S. citizens residing in a foreign country. No, they don’t pay French income taxes either, because France does not tax the residents of St. Barth’s.  However, the sales tax is very steep on a bottle of expensive wine. After a great day at the beach, it’s a tolerable expenditure for the common good.

Oh, by the way, your tax dollars paid off Sammy’s defaulted mortgage (now called a “toxic asset” by Mr. Geithner) which Bear Stearns sold to Goldman Sachs shortly before going out of business.

Say it ain’t so…but it is.

About the writer: Del Dunbar, a CPA and partner with Dunbar & Martel, has lived in Ann Arbor since the 1960s.