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As we approach the centennial of the ratification of the 16th Amendment, which granted to the Federal Government the power of the income tax, it seems an appropriate time to consider what a hundred years of this authority has wrought.  Beginning with the Civil War-era Revenue Act, the income tax plied an uneven path until this brief phrase was grafted onto the Constitution in 1913:

"The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several states, and without regard to any census or enumeration."

In the hundred years since, Congress has endeavored to construct a tax code that is breathtaking in its scope, disheartening in its lack of impartiality, and confounding in its vast labyrinth of deductions, credits and exceptions. Consider the following:

- According to the CCH Standard Tax Reporter, in 2012,  73,608 pages were required  to fully document the United States Tax Code .

-  Through various tax credits and deductions, the government engages in de facto spending through the tax code, spending commonly referred to as tax expenditures.  Some estimates  put the current cost of these expenditures at 1.3 trillion dollars, or the equivilant of approximately a third of what the  Federal government spends in actual disbursements and payments.  Meaning that, in dollar terms, the government is likely 25% larger than its budget suggests.

- The progressivity of the income tax is somewhat of an illusion.  While those with greater incomes nominally face higher marginal tax rates, loopholes and carveouts that reduce those rates are more available to the higher earners than those in lower tax brackets.  This applies to the corporate income tax as well: While the United States has the second highest corporate tax rate in the world (behind Japan),  tax breaks,  special subsidies and other loopholes allow American companies to engage in sophisticated tax avoidance practices that effectively narrow the tax difference between them and their foreigh counterparts.

- Income from wages and income from various forms of  investment are treated differently when it comes  to taxation.  A standard macro economic case  is often made about the correlation between investment in capital and employment levels; hence the justification for the preferential tax treatment of investment income. But it can also be argued that not all financial transactions treated as investments under the tax code in any way contribute to the creation of capital.  In the apt words of the late Christopher Hitchens,  "some people earn money and other make it."

While the clamor for "tax reform" and "tax simplification" is often heard from politicians, especially during an election season such as  recently concluded, the reality is that there has been no meaningful effort to fundamentally change or improve the system of funding our government in a long time.  The periodic adjustment of  rates,  as  occured in the recent "fiscal cliff" deal, and, before that, during the tenures of Presidents Reagan, Bush Sr. and Clinton is simply that, an adjustment. With so many constituencies loath to relinquish the preferential treatments that are buried in those 73,608 pages, the prospect of sustantive tax reform seems remote at best.  The Byzantine nature of the code itself plays no small part in the persistence of  efforts by these constituencies to maintain or extend these preferences.

So what is the imperative here? We do not fund the operations of our national government solely through tax revenues, as evidenced by the government's constant borrowing to cover budget deficits and the growing national debt.  It is not my object to litigate the nature and level of government spending here, but to study only the aspect of taxes.  For the sake of discussion then, let us assume that the level and the nature of Federal spending in acceptable to a majority of the public, and to our elected representatives. How then should we treat taxation? This is the issue I intend to visit from time to time in the coming months.

First principles: A system of taxation should be fair. By this I mean it should assess a person's (or business's) financial liability to the government in an equitible manner:  Those who gain the most from economic activity in our society should contribute the most to the maintenance of that society.  In a system where taxes are levied on incomes, equal incomes should pay equal taxes.

The system should be simple, concise and transparent. Eliminating complexity means eliminating the potential for loopholes and other tax preferences. The lobbying of special interests would be diminished and so would the temptation for our politicians to traffic in special tax treatments.

The system must account for the macro economic impact of taxation. If we agree theoretically on the level of government spending as a percentage of GDP,  have we not also implicitly agreed on the percentage of GDP to be extracted to pay for this spending?

By viewing taxation through the lens of these principles, I am seeking to make a case for a more effective and equitable system. I will hopefully complete this by April 15.  If not, I can always file for an extension.