Politics & Policy

Whither Taxes?

On the prospects for reform.

A C-SPAN look-in on President Bush’s challenge on tax reform featured two bright and experienced young scholars, libertarian in outlook. Mark Henrie, from the Intercollegiate Studies Institute, and Doug Bandow, appearing under the auspices of the Cato Institute, acknowledged that Mr. Bush’s reforms would not be shaped by fundamentalist models. Thoughtful reformers in the recent past have focused on alternative approaches to tax reform radical in character. The first would eliminate the progressive feature of the income tax — Rockefeller and his chauffeur would both pay 15 percent of their income. The second goes further, eliminating not only the progressive feature of the income tax, but the income tax itself, substituting a sales tax. Congressman Dick Armey wrote a book advocating a reform that drastic, and Milton Friedman many years ago made recommendations that deep.

It ain’t going to happen, was the consensus on C-SPAN, so one lowers one’s sights. What is it that could entice the Bush administration and those Congressmen who seek a substantial change in the laws?

In a recent conversation with Professor Friedman, he stressed the point that substantial reform cannot be expected for one simple reason: Congressmen are in Washington to craft tax laws that enhance the interests of their own constituents.

I wrote in a book 30 years ago that “tax reforms seek to improve on previous tax reforms by arching their provisions, like jungle leaves writhing for the sunlight, towards such rays of justice and equity as are discernible at any given moment of relative composure in American politics, when the pandemonium freezes, as for a photographer, for just long enough to permit one set of claimants to overshadow another. Thus a tax reform is born.”

Never mind the verbal frosting, the analysis is undeniable. A tax reform is a new code enacted after massive wrestling and eye-gouging and threats and excoriations, presented as a civilized enhancement of social policy. It is an assertion of justice, justice understood as a blend of considerations: the necessities of the state; the toleration of the body politic; the relationships of power among the affected interests; and rough justice. All of the above decocted from the minds and hearts of 535 legislators.

But the call for intelligibility is more than merely a cry for understanding. The incomprehensibility of modern IRS language challenges the dignity of self-rule. “For purposes of paragraph 3, an organization described in paragraph 2 shall be deemed to include an organization described in section 501 c, sub-paragraphs 4, 5, or 6; which would be described in paragraph 2 if it were an organization described in section 501c 3.” That paragraph is taken from the 1969 Tax Reform Law, and sheer physical cowardice discourages investigation into how subsequent tax reform laws absorbed that paragraph. What we do know is that the current law consumes over 54,000 pages.

Complexity of tax law language informs us of attempted refinements of fiscal thought. Yet these refinements, piled one on another, can end in vitiating the purpose of the law and even in contradicting it. A desire to shelter the poor can’t get around the regressive impact of state sales taxes on goods the poor need to have, whether telephone service necessary to employment, or cigarettes for which there is psychic dependency. You can’t frame sales tax schedules on proportionality: because rich and poor have common necessities.

The political clamor during the election season had to do with the relief given to the rich by the tax law of June 2001, which reduced the top tax rate from 39.6 percent to 35 percent. This meant that the highest bracket taxpayers pay $60 to $80 billion less in taxes than they would otherwise pay. These are the same 1 percent of taxpayers who come up with 34 percent of all the income taxes that flow in to the federal register. There will be a first-class row over the question whether the richest Americans should be permitted to be that rich.

That much we can count upon. But also, we can hope that even if radical legislation has to be postponed yet again, the criteria will affect the legislative mood, and illuminate the way to sounder tax laws.

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