"If you are married filing separately and your spouse files Form 1040 and itemizes deductions, see page 36 and check here. Enter the standard deduction shown below for your filing staus. But if you checked any box on line 18a or b, go to page 36 to find your standard deuction. If you checked any box 18c, enter -0-....If line 27 is more than 28d, subtract line 28d from line 27 and see page 43."

Look familiar? This is your simplified 1993 personal income tax return, one of many different tax forms the IRS estimates Americans spend over 613 million hours each year to complete.

The 1040, complex itself, is just one aspect of the multitude of different forms, rates, deductions, exemptions, credits and bureaucracies which make up the U.S. tax system. Our present system is excessively complicated and inefficient, as thousands of tax lawyers devote their lives to finding loopholes and other ways to evade taxes wasting billions of dollars.

The income tax code, thousands of pages long, is in dire need of simplification. We could dramatically improve our tax system by implementing a value added tax (VAT) to replace the personal income, corporate income, and payroll taxes.

A VAT of about 20 percent would produce the same amount of revenue, with many benefits, not the least of which is its simplicity.

Calculating taxes under the current system is not as simple as it sounds because taxpayers have to account for deductions, inflation and depreciation, just to name a few such complications. In fact the problems which arise from income and payroll taxes are inherent in the tax base. These inefficiencies can be reduce but not eliminated so long as the government retain income as the tax base.

For consumers, the VAT tax would be easily computable, since it is much like a retail sales tax; with a 20 percent VAT, a good or service which costs $100 would be taxed $20. There would be no deductions, exemptions, or credits to worry about. Thousands of pages of tax codes and regulations could be done away with.

The VAT would not present extra difficulties for companies, since under a VAT (such as the type currently use in Japan), businesses would not be burdened with complex tax calculations. They would not have to make any significant changes to incorporate the VAT, since their own accounting records supply all the necessary information to calculate the tax. Instead, they would reap tremendous gains from throwing away the current complicated tax-calculation apparatus.

The compliance costs for the corporate and payroll taxes are currently extremely high. Switching to a VAT would allow companies to spend more on wages and investment, and less on tax lawyers.

Critics of the VAT point to the complexities of VATs in Europe. While it is indeed true that European countries have experienced high administrative and compliance costs, this complexity has been the result not of the VAT itself, but of the numerous exemptions (housing, charity, food) which European governments have decided to institute.

The most efficient VAT is one without any exemptions, which is the type of VAT the U.S. should adopt. The problems European countries face with their VATs are the result of their decisions to make their system more complex.

Although simplicity is important, the VAT's most significant benefits are its neutrality and fairness. Simply put, a VAT does not distort economic behavior. Economists generally agree that the best type of tax is one that does not change incentives, since incentives create deadweight losses and reduce consumer welfare more than necessary. Distortions result in inefficient allocations of resources, which slows growth and hurts everyone.

For example, corporate income and capital income taxes reduce savings. Personal income taxes lower both savings and the labor supply.

Savings and capital formation are the keys to economic growth, and compared to other industrialized nations, the US savings and investment rates are abnormally low. Our current tax system's anti-savings bias is a major cause of this. Our low savings rate inhibits economic growth and future productivity.

Replacing current taxes with a VAT would remove the bias towards consumption, and thus cause savings to increase. This, in turn, would result in the creation of more jobs and an increase in economic growth.