Well, Congress is fiddling with the tax laws again. Between the time this is written and the time you read it, all manner of mischief may occur. One thing is certain: whatever the Solons of Capitol Hill do, it will be done in the name of “fairness.” Actually, another thing is certain, too: it won’t be fair.
Part of the problem, of course, is that what seems fair to me may not seem fair to you. I don’t much care about the depreciation schedule on a FedEx truck, but I sure want to get rid of that alternative minimum tax. And so on.
But the bigger part of the problem rests with Congress. The tax code not only raises money for the government, it buys votes for our representatives. All those tax credits and deductions the legislators toss around make some constituency happy, and that presumably translates into votes for whomever can claim credit.
Some of those deductions have become so sacred that people forget they are the work of legislators, and not carved in stone next to the Ten Commandments. The home interest deduction, for example, is designed to promote home ownership in America. A worthwhile idea, no doubt; but was it really conceived with 12,000 square foot palaces in mind? Is it socially beneficial to have homes like these dotting the countryside? Or the good old charitable deduction–certainly it is good to share with those in need, but do we need a tax break to tweak our consciences? Besides, doesn’t the government already share a lot of our tax dollars with the same people? Every time another loophole is opened or an exemption defined, it forces the base tax rate higher in order to compensate, and creates some economic dislocation, often unforeseen and unwelcome. Don’t look for consistency here.
The point is that if none of these things existed the tax rate would be much lower and, even more important, you could file it on a postcard, all by yourself. Calculations have been made that a flat tax of 13% would raise the same amount in taxes as the present system. If the flat tax is too controversial, a progressive system with two or three brackets would still fit on that postcard.
Of course many people would howl that such a change is unfair, and in a sense, it would be. It would undo a lot of entrenched practices and unemploy a lot of accountants. But no system is going to make everyone happy, so if it’s going to be unfair, it might as well be simple.
What’s the chance of real, comprehensive tax reform? Zero. Not just poor, or near zero, but actually flat zero. Our representatives will blow a lot of smoke and make some changes, and may even improve things for a while, but it won’t last. There will be new pressures and new promises and different people, and the same old game will go on.
The president has just proposed a 15% corporate tax rate. In theory, this would encourage corporate growth in the United States and repatriate much corporate money presently housed abroad. It would stimulate employment and the economy. But wait! By the time lobbyists for depletion allowances and ethanol subsidies and farm price guarantees and research grants and who knows what else are finished wining and dining our representatives, change will be glacial.
The president also proposed changes in personal taxes. Seven brackets to three. Eliminate all deductions except mortgage interest and charitable contributions. Eliminate the estate tax. Repeal the AMT. This is all an opening gambit. All Democrats and any Republicans with injured constituencies will raise hell. Both sides agree reform is needed, so some kind of compromise will eventually pass, one we hope will help the economy and investors.
To some degree, this is all part of the cost of democracy. Our government is inefficient and subject to constituent pressure by design; dictatorships can be efficient. But there ought to be a balance somewhere short of the level of waste and profligacy we presently enjoy.
We have ourselves to blame, certainly; we elect these people, but it goes beyond that. The whole election system has become so money dependent and so demanding of candidates’ time, dignity and honesty, that good people with good intentions often won’t run, leaving the field to those with big egos interested only in the political game and its ancillary benefits.
So, on they will go, changing the rules to please somebody or buy a vote, and we will all pay the price. There is a famous remark by a French treasurer of the pre-revolutionary era to the effect that taxation is the art of plucking the goose without killing it.
How are your feathers?