A Modest Proposal
Why not tax reform that cuts to the root of the problem?

By Michael Long, a director of the White House Writers Group
March 8, 2001 10:20 a.m.

he U.S. income tax system is a train wreck. It is shot through with disingenuousness, imperious motives, and absolute confusion. The best way to fix it is to drag it out behind the barn and give it the Ol' Yeller treatment — but since that's not going to happen, opponents might consider a thoughtful incrementalism:

Step One: Make the payment of taxes a conscious act by ending withholding.
The government has long banked on the old saw "out of sight, out of mind" to maintain the withholding regime. Withholding allows government to coerce payment from citizens with little complaint, since collection is a passive act and part of the economic landscape. As long as paying taxes is painless, there will be no serious inquiry as to how well the money is spent. End withholding, and apathy about government comes crumbling down. If everyone had to do what only the self-employed do now — pay their taxes quarterly — the howls of outrage about government spending would be heard in heaven itself.

If the only way to get people to finance government is to trick them out of part of their paycheck, are we really that strong a nation in the first place? If various items of government spending can't stand up to taxpayer scrutiny, the spending should cease.

Step Two: Enact a national referendum on all tax increases.
A populist idea that has attracted middling support in the past, requiring popular approval for tax increases would force Congress and the president to take their case to the people. All of a sudden, politicians would have to be salesmen who earned our trust, not careless stewards who can pluck cash from the money tree whenever they need to. Legislators would have to identify those who would benefit from spending, and why a legislator has such an interest in helping that group in the first place.

A referendum on tax increases would cut back on sweetheart deals, political paybacks, corporate welfare, and other pork.

Step Three: Identify the social or economic purpose of every line of every new tax bill — and set a quick timetable to similarly mark up laws already on the books.
By codifying the goals of tax legislation, legislators would be required to either 1) propose only those tax measures whose purpose can be honestly explained; or 2) make up a really good story that they had better be prepared to defend to a nosey press.

This kind of identification is necessary because much of our tax code is social engineering, and social engineering is wrong for numerous reasons, two of which follow.

First, social engineering is morally repugnant to anyone who loves liberty. One searches the Constitution in vain for the codicil that commissions the government to influence the private behavior of American citizens by taking away their incomes. No matter the nobility of the goal, the government ought not be in the business of telling us what to do.

Second is the "elephant in the living room" of tax law: social engineering by the tax code just doesn't work. Even experts don't understand all the incentives and punishments in the tax code; witness the annual reporter's ritual of sending identical financial records to fifty different tax preparers in anticipation of fifty different results. If accountants can't figure it all out after the fact, how are the rest of us supposed to know how to tune our behavior for maximum profit before?

Step Four: Diminish the progressive aspects of the tax code.
Let's have a tax that is easy to understand, simple to file, and that lends itself to simple and universal enforcement. It costs everyone coming in the gates of Disneyworld the same price to get in. Nobody cares how many rides you ride or how many shows you sit through. You can nap on a bench or ride the log flume all day — it's the same price. Let's treat America the same way for those who choose to live here.

That's regressive, you say? So is everything in life. A $20,000 car amounts to 67 percent of the income of a worker who makes $30,000 per year. But for a person who makes $300,000, a $30,000 expense is only ten percent. Should car manufacturers get out of the "regressive" pricing business?

Let's try a real flat tax: a minimum from everybody, due simply to pay for the privilege (read "infrastructure expense") of living here. In round numbers, there are about 200 million people in America over the age of 18. This year's non-Social Security budget is about $1.5 trillion. In order to avoid either shortfall or surplus, the cost spread across all of us is about $7500 per adult.

No corporate income tax, no death tax, no national sales tax, no questionable "progressivism" dependent solely on the opinion of a few members of Congress and some lobbyists with deep pockets.

A phased-in program might begin with a floor payment of $2,000 per adult, with the difference made up through a progressive system whose rates are linked solely to income — with no deductions allowed, period. Those who cannot pay their minimum tax could turn to private charities set up for just that purpose. And with the financial power loosed by the decline of the "progressive" system, more dollars would be available for such charity — and so would more goodwill from the human heart.

Step five: Make sure that one of those quarterly payment days falls on Election Day.
Comedians kid about this all the time. But I'm serious.

Make no mistake, something has to be done, and soon. It was Scottish historian Alexander Tytler who noted over 200 years ago the idea that "democracy…can only exist until the voters discover that they can vote themselves largesse from the public treasury." And already the damage is insidious and ongoing. Part of the blame for the decline in our economy belongs to the authors and proponents of our tax system. Researchers at the Tax Foundation note that "almost half of the new income generated by our booming economy has gone into government coffers, not private pockets." Just imagine what kind of advances we might have enjoyed if even a portion of the money funneled to the government had stayed in the private sector.

There are other good ideas out there — economist John Rutledge's "budget stamps" plan leaps to mind — but any complete remedy must begin by re-establishing the connection between the collection of tax dollars and the spending of them. As long as Americans pay massive taxes without realizing it — and as long as politicians are essentially insulated from inspection by those who pay the bills — the system will cut deeper and deeper into our lives and our economy with each passing year.