Tuesday, April 21, 2009


Now that the tax filing season is over I once again regularly search the web for items of tax-related “BUZZ”. In doing so I came across two editorials of interest from the Wall Street Journal.

* The first one, “We Still Need a Simpler Tax Code”, is by National Taxpayer Advocate Nina Olson.

Nina points out, “Every year taxpayers and elected officials complain about the tax law's complexity. But despite the exasperation, no significant simplification has occurred since the landmark Tax Reform Act of 1986. To the contrary, each new tax proposal is layered onto the existing code, rendering it more complex with every new act.”

She gives some interesting statistics to highlight the complexity of today’s Tax Code:

Since the beginning of 2001, there have been more than 3,250 changes to the tax code -- an average of more than one a day -- including more than 500 changes last year alone.

The tax code has grown so long that it's challenging even to figure out its length. A search of the code conducted in the course of preparing my last report turned up 3.7 million words. A 2005 study by the Tax Foundation, a tax research organization, found that the number of words in the code has more than tripled since 1975.

One significant problem is the ambiguity concerning tax breaks meant to encourage taxpayers to save for education and retirement. The number of such incentives has grown to at least 27. And the eligibility requirements, definitons of common terms, income-level thresholds, phase-out ranges and inflation adjustments vary widely

Nina is right when she says “American taxpayers deserve a simpler and less burdonsome tax system”. As she said in the beginning of her editorial, everyone agrees that the tax system is too complicated and should be simplified – but yet nothing is done about it. Why is that? Nina hits the nail on the head when she suggests –

In my view {and mine, too – rdf}, it’s because elected officials believe the political risks of putting forward a proposal to vastly simplify the tax code outweigh the political benefits. Each tax break has a constituency, and constituencies that stand to lose benefits tend to organize quickly to protect their benefits.”

As long as the main function of a member of Congress is not to properly manage the affairs of the country but to get re-elected we will continue to have the mucking fess that the Tax Code has become. Congresspersons do not think first what is best for the country or best for the American public, but always “what’s in it for my constituents/contributors?”, or, if my cynicism is allowed, more realistically “what’s in it for me?”.

As Nina points out “tax simplification would benefit all Americans, regarless of political party”. She feels, again as do I, that most Americans would enthusiastically support tax simplification, and “it is this constituency that can and should prevail”.

* The second, titled “Everyone Should Pay Income Taxes: It's bad for our democracy to exempt half the country”, is by Ari Fleischer, a former press secretary for President George W. Bush. Here are some facts from the editorial (the highlights are mine) -

As a result of the 2001 tax cuts enacted by a bipartisan Congress and signed by President George W. Bush, the share of taxes paid by the top 10% increased to 72.8% in 2005 from 67.8% in 2001, according to the latest data from the Congressional Budget Office (CBO).

Contrary to the myth that Mr. Bush cut taxes only for the wealthy, the 2001 tax cut reduced taxes for every income-tax-payer in the country. He reduced the bottom tax rate to 10% from 15% and increased the refundable child tax credit to $1,000 from $500 per child, both cuts that President Barack Obama says we should keep. In so doing, millions of lower income taxpayers were removed from the tax rolls, shifting the remaining burden to those at the top, even after their taxes were cut.

According to the CBO, those who made less than $44,300 in 2001 -- 60% of the country -- paid a paltry 3.3% of all income taxes. By 2005, almost all of them were excused from paying any income tax. They paid less than 1% of the income tax burden.. . . All the while, this large group of voters made 25.8% of the nation's income.

Mr. Obama is adding to this trend with his "Make Work Pay" tax cut that means almost 50% of the country will no longer pay any income taxes, up from a little over 40% today

I wholeheartedly agree with Mr Fleischer’s suggestion -

It's time to create an Economic Growth Code whose purpose is to fix and grow the economy, not redistribute massive amounts of wealth. A new tax code that creates growth and reforms our entitlement system is the only way to dig our way out of the hole we're in.

Under an Economic Growth Code, everyone in American would pay income taxes -- everyone. Such a system would be designed to foster broad-based growth for all, in contrast to the loophole-ridden system we have today. Not only is the current code flawed from top to bottom, it is used by politicians to divide the public along class lines and fails to promote prosperity

I have long said that every single adult taxpayer should pay at least $100.00 in federal income taxes.

So what do you think?


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