Point of agreement.

BENEATH the struggle over taxes lies a broad consensus: the tax code is an ungodly mess. Americans paid $1,268 billion in federal taxes in 1994. Merely complying with IRS regulations cost another $197 billion, according to the Tax Foundation. In effect, the time and money spent deciphering the tax code, keeping records, filing forms, and so on, represents an unlegislated 15 per cent surtax.

For most of us this means paying an accountant or spending a few weekends at the adding machine. Big companies, on the other hand, report to the IRS throughout the year. Some are under continuous audit -- the 1993 return for one giant company ran to 21,000 pages and 30 volumes. Yet small firms bear far heavier relative burdens.

Because of economies of scale, companies valued at less than $1 million -- that is, more than 90 per cent of all U.S. corporations -- spend far larger asset shares on tax compliance than big corporations. Indeed, Arthur P. Hall, a Tax Foundation economist, estimates compliance costs for these corporations at $15.9 billion in 1990, or nearly four times their $4.1-billion combined tax liability. In other words, every $1 Uncle Sam collects from a small company costs the company about $3.87.

It gets worse. Many companies end up paying sizable sums to the IRS even when they lose money. The culprit is the Alternative Minimum Tax (AMT). Installed as part of the 1986 tax act, the AMT was created to ensure that even corporations and individuals with large depreciation deductions would pay at least some tax.

Most AMT revenue comes from large corporations. The airlines, for example, have lost more than $13 billion over the past five years but have ponied up more than $500 million in AMT payments to the Federal Government. But even small start-up firms find themselves paying a large AMT tab. Many have had to borrow money in order to do so.

The AMT's major achievement has been to penalize companies that invest heavily in new equipment and then run into periods of low profitability. What's worse, it is a fiendishly complex section of the tax code, requiring companies to maintain an extra set of books. Combined with the equally monstrous rules governing the taxation of income from foreign sources, it accounts for fully half the cost of complying with the corporate income tax.

Are tax payments and compliance costs the whole story? Hardly. James L. Payne, an independent scholar who has taught at Yale and Johns Hopkins, defines tax burden as including such things as emotional stress, litigation costs, and the economic loss from business projects that are scuttled or done differently solely because of tax considerations. Once you include these hidden expenses, Payne says, every federal program costs the country about 65 per cent more than the announced budgetary costs. A congressman's $133,600 salary deprives the private sector of $220,440. Balancing the budget at, say, $1 trillion in revenues and spending would leave the nation $650 billion short.

Tax simplification is a major goal of Dick Armey's flat tax -- a tax so simple that even business tax returns would fit on a postcard. Companies would pay a flat 17 per cent on receipts less expenses, including capital expenses. There would be no depreciation formulas and no shakedowns of unprofitable firms.

Of course, rewriting the tax code and unlearning long-standing inefficiencies will itself be costly and time consuming. Arrrrrgh!

                            A TILTED PAYING FIELD:
                            BUSINESS TAX COMPLIANCE
           Asset Size         Estimated       Compliance Costs
          ($Millions)       Compliance Cost    as a % of Assets
         $     1.0          $       7,400           0.74%
              50.0                200,000           0.40
             250.0                350,000           0.14
           1,000.0                900,000           0.09
           5,000.0              2,000,000           0.04
          10,000.0              3,000,000           0.03
   Source: Tax Foundation