The United States: Economic and Educational Problems and a Suggestion

Robert W. Service, David Loudon
(Brock School of Business, Samford University, 800 Lakeshore Drive, Birmingham, AL 35229, USA)

Abstract: The recent U.S. Presidential campaign resulted in much press coverage about the American income tax system and the state of the American economy. During this time, late August through December of 2012, the first author worked in London and read the press there and talked to many Brits, Germans, and other nationalities about taxes, economies, and governments. Admittedly, there was no randomness to the sample of inputs. Nevertheless, most evidenced their near total lack of understanding of their own systems. The British admitted to knowing little about their system but had opinions on the American system, and the Germans were most informed but many of them were economists! The only thing the Brits or Germans knew less about than their own systems was the American income tax system; nonetheless, they had strong opinions, based not on facts but from misinformed foreign or domestic political pundits, particularly the written press. Anecdotally, an understanding of basic economics seems to be a bit better among the Brits and much better among the Germans than Americans. Yes sadly, when one converses with citizens in America—even (if not especially) the highly educated—one finds a basic lack of understanding of the American income tax system and related economic principles. This “difficulty” might seem to be understandable because of the complexity of the system. Reading any U.S. income tax manual will point out the difficulty. However, because something is difficult does not mean it is impossible or unnecessary (Wooden and Jamison, 2005). In fact, vast numbers of Americans have opinions on the U.S. income tax system, yet know very little about it. When expressing an opinion, far too many say, “I don’t know much about it but . . .” and then continue on with their prescripts based on little that is factual or true and little apparent knowledge of how things currently work or have worked in the past. An understanding of economics, economies, and tax systems seems to elude far too many citizens. Thus, we keep making the same changes over and over expecting different results. This article is intended to act as a guide for thinking by presenting a rather simplified version of the American national income tax system via real examples and generic-related economic principles. Then, some alternatives will be presented designed to provoke thought and possibly guide much needed revolutionary change. The purpose of this paper is not to lean to the “left” or the “right” but to try to get the facts as straight as possible and tell why some alternatives could be better than others and a bit about why they might be better. Do not take this paper as a political statement; it is not one.

Key words: U.S. Federal Income tax; debt and deficits; taxes and economies; free markets

JEL code: A19