At a recent speech, Governor Palin said that there is no value-added in taxes. I almost put that quote alone on my site, but pulled it down before publishing it, because a statement like that can’t stand alone.

Obviously, if we’re going to have a government, that government needs some form of funding, even if it’s just to pay for the domain name. And I can’t see government funding becoming voluntary. “Bake sale for bombs” has an intrinsic appeal, but it will never happen.

So some form of taxes are necessary. But we must never forget that taxes are not themselves of value. They are a compromise between freedom and good intentions. Taxes should not exist for their own sake; today, too often, they do. We forget that the things we get from government came from our own wealth. And that every tax levied is an economic opportunity lost. Money spent on taxes does not produce or create productive jobs. The very act of taxing obstructs job creation, economic growth, and opportunity.

Taxes should be simple, they should be obvious, and they should be unobstructive.

Taxes should be simple

Taxes should be simple because when they’re complex they do two very bad things. The most obvious is that they make it more expensive to pay your taxes. I have an incredibly simple income stream; I own no property, hold only one job, am unmarried, and have all of my savings in one bank. I don’t even itemize. Even then, I have to buy tax software and spend hours answering questions that I mostly just hope I’m understanding correctly.

Undoubtedly I’m paying too much tax by doing it this way. But even overpaying can cause trouble. Every once in a while I’ll pull in $300 a year on Amazon sales. My expenses far outweigh that: the cost of running hoboes.com alone exceeds that. But it still isn’t worth it to spend hours figuring out how to deduct them correctly. So I just report the full amount. A few years ago, I received a letter from the IRS asking why I wasn’t paying quarterly social security taxes on this money. So I still had to spend the time—after my heart returned to my chest—writing a letter explaining that I’m not really making that much money, I just don’t want to deal with reducing it. And then hoping that I didn’t hear from them again afterwards (which I haven’t, so far).

Tax law complexity also adds to costs on the other end: the IRS spends a lot of money processing taxes, and of course that money reduces the amount of money we can use on what taxes are supposed to pay for.

Americans spend $250,000,000,000 to $300,000,000,000 each year just to prepare and file taxes. The tax preparation industry is so big, it can successfully lobby the government not to simplify taxes and keep the IRS from offering free online submission.

The GAO estimates that overall, it costs 20% of taxes to pay for taxes. That’s crazy inefficient. Think of what we could do with an extra 20% either in taxes or in the economy!

Simplifying taxes saves time and money throughout the tax chain. Both individuals and businesses expend too much time and money complying with our complex tax system—time and money they could use to create more products, buy more products, or hire more people. Removing tax complexity doesn’t just make individual lives easier, it makes our economy stronger by freeing our businesses to focus on their actual business. They can hire more people within their industry instead of having to hire more (expensive) tax compliance specialists.

Taxes should be obvious

It should be obvious when we’re paying taxes and how they’re being paid. Invisible taxes are easy to abuse, because the products of those taxes, no matter how inefficient, come to look like they’re free. The more invisible a tax is, the less incentive there is to keep the tax low and to use the tax well.

Taxes would be a lot lower right now, and tax money better spent, if everyone wrote a check for the full amount at the end of every month, rather than having it invisibly removed from their paycheck. We all know people who think that their tax rebate is free money.

Simplicity shouldn’t make taxes less obvious. For example, the simplest tax would be to have no levied taxes at all, and just let the government print more money when it needs more money. But because no one is actually paying this tax directly, there will be no limit to how much the government will spend—and then inflation will drive the prices of everything through the roof. A tax like this would almost certainly destroy any democracy. The cry for more “free” services will never stop when no one thinks they’re paying for it.

Similarly, as I wrote in Tax individuals, not organizations, sales taxes are better than business taxes. Business taxes are just like sales taxes except that they’re invisible. They still raise the price of the product, but they hide which part of that price is taxes.

Taxes should not obstruct

It isn’t contradictory to say that taxes should be obvious but unobstructive. Both relate to each other. Taxes should not get in the way of creating jobs, growing the economy, building a business, building a career, or saving for the future.

Taxes should not require lots of paperwork. They should not require that every business have a dedicated tax compliance department; this makes it harder for startups to compete with established businesses. Less competition means higher prices, a more fragile economy, and reduced innovation. Taxes should not be so complex that it is easy for individuals (and businesses) to accidentally break the law. They should not be so complex that large businesses easily lobby for rules that cripple their competitors.

Individuals should never make less money after taxes just because their income rose or they put away savings. That can only encourage cheating. The first year I started saving, the interest on my savings—about $5 or $10—increased my taxes by double that. Guess what? I cheated. Because I wasn’t alone, laws were created to keep us from cheating in the future, requiring every tiny bit of income to be reported and stored in a central database. Obstructive taxes create obstructive laws.

Taxes should also not grant government agencies legislative power. Tax authority shouldn’t be an authority to limit free speech or tell a company how to run its business.

What about low taxes?

This doesn’t say that taxes must be low. If taxes are simple and obvious, and people choose to support high taxes anyway, well, they’ve clearly chosen to do so. And as long as they’re simple and unobstructive, the taxes, high or low, will go more to what they’re collected for and less to the act of collecting them. Today, though, taxes are so insidious that few people know where they all are and how many they’re paying. And they’re so complex that at least 20% of the money spent on taxes don’t go to the taxes themselves, but are spent in the preparation and processing of taxes.

We pay taxes for the privilege of paying taxes.

What about low spending?

Nor does it say that spending must be low. But if taxes are obvious, and we still choose to spend that money, then fine. We know what’s being spent. We shouldn’t sneak money away from people: we should be proud of whatever programs we’re spending it on.

Government spending shouldn’t obstruct people and businesses from doing their job any more than taxes should. The government shouldn’t, through its spending, become the plum customer in an industry, because that industry will then ignore smaller customers—such as you and me and the places we work for. The obvious example is health care. If the health care industry decides that they can make more money catering to government bureaucrats than to us as patients, we’re screwed. Imagine all the problems you’ve had with your employer-based health care and multiply it by thousands.

High government spending in any one industry sucks up economic viability just like fire sucks up oxygen. It destroys it, or at least locks it away to where it can’t be reached.

Taxes never add value. They increase corruption, depress the economy, and reduce jobs. They are sometimes useful, sometimes even necessary, but we must never forget that they are a compromise between some thing that we want to force everyone to contribute to and freedom.