Lessons Business Leaders Can Learn From The Broken U.S. Tax System

If there's one thing people on both sides of the political fence can agree on, it's that the tax system in the United States is broken, and while the goal of fixing it is the same, they have completely different ideas about how to fix the problem. Either way, business leaders have something to learn from the disagreements in Washington.

Nobody really knows how it started to deteriorate the way it has, but it's clear that the way finances are handled in Washington is off. The current tax law is longer than the Gettysburg Address, the Declaration of Independence, and the Bible combined.

Over half of every tax dollar collected is allocated to defense or healthcare. In a perfect world, this might be a good thing as these are two areas that conservatives and liberals both agree require national government funding to operate properly, but it's in the details that the problems become clear... and the ways to apply these lessons to business become evident.

Let's take a look at some of the lessons business leaders can learn from the U.S. tax system:

Lesson 1: Interest is a killer. 

It's par for the course to have to borrow money in business. Few companies start without some sort of loan or up-front cash to get the ball rolling. Expanding businesses can also require some sort of interest-based financing to operate properly and grow. In many ways, this is a given.

The United States pays 7.4% of tax money directly towards interest alone and the overall number is rising rapidly. The 2013 budget calls for $472 billion for interest on the public debt.

In business, there is always a risk when borrowing. Stay frugal whenever interest is involved as one never knows when circumstances will force revenue to decline. The credit card economy is not the way to do business regardless of how things are today. Borrow based upon worse-case scenarios and pay down the principal as quickly as possible to keep interest charges low.

Lesson 2: Improvements and research should never be lost in marketing and deployment. 

Within the staggering amount of money currently allotted for health care, only a small percentage is being used for research. Preventative, research-based health care funding is a drag on the tax dollars today but would help to reduce the overall expenditures in the future.

The same can be applied to business. We often get so wrapped up in sales, marketing, and distribution that we do not put enough effort into improving, innovating, and recreating our products or services. MySpace is a perfect example of a company that put a lot of emphasis on making it great in the moment (back in 2005 and 2006) that they didn't advance the site to meet growing needs (in 2007 and beyond).

Facebook, on the other hand, has always continued to try to improve their platform, the relationships with businesses, and the way they present the massive amounts of data they possess. They are constantly trying to innovate. Today's platform is never good enough for them, which is why their future is bright and MySpace is fading from memory.

Lesson 3: Simple is more nimble. 

As mentioned before, the current tax code is gigantic. Rather than cutting it down and making it easier to comprehend and apply, it is in a constant state of growth. As a result, it is always more complicated today than it was before.

The problem this poses is in advancements to the system. There have been great ideas that have come and gone in recent years that could have worked had anyone been able to fit it properly into the current context of tax law so as to not have contradictions. Complications create loopholes. Loopholes create problems. Problems create turmoil.

Apple is a company that has always tried to keep things simple. They are minimalist in design and think from the perspective of "how do we make it easier" for their customers. Their software is elegant in its ease-of-use and the hardware has as few moving parts as possible.

Complicated can be a necessary component of scientific research, but just about everywhere else it makes it easier to keep it simple. The more complicated it is, the harder it will be to unravel and improve upon quickly.

The System

This visualization of the U.S. tax system put together by H&R Block breaks down what currently drives the money in Washington. What is Uncle Sam doing with the money?

Here are the answers (click to enlarge):

Tax Money

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