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Opinion

Opinion

Simplified tax code has broad appeal

December 23, 2010

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— Many parents have heard FICA Screams. Indignant children, holding in trembling hands their first paychecks, demand to know what FICA is and why it is feasting on their pay.

FICA (the Federal Insurance Contributions Act tax) is government compassion, expressed numerically: It is the welfare state; it funds Social Security and Medicare. Sometimes it makes young people into conservatives.

Dave Camp was 14, working for his father’s garage in central Michigan, when he made the acquaintance of FICA. Now 57 and about to begin his 11th term in Congress, he will chair the Ways and Means Committee, where he will try to implement the implications of his complaint that “the tax code is 10 times longer than the Bible, without the good news.”

His aim is “fundamental” tax reform, understood the usual way — broadening the base (eliminating loopholes) to make lower rates possible. He would like a top rate of 25 percent — three points lower than Ronald Reagan achieved in 1986, with what proved to be perishable simplification.

In George W. Bush’s 2004 speech to the Republican convention, he denounced the tax code as “a complicated mess” that annually requires “6 billion hours of paperwork” — now estimated at 7.6 billion. He vowed to “simplify” it. The audience cheered. Then he promised new complexities. There would be “opportunity zones” — tax relief for depressed areas — and a tax credit to encourage businesses to establish health savings accounts. The audience cheered.

This is perennial mischief — using the tax code not simply to raise revenues efficiently (with minimal distortion of economic behavior) but to pamper pet causes, appease muscular interests and make social policy. Since 1986, the tax code has acquired more than 15,000 complications.

“Targeted” tax cuts are popular complexities because they serve a bossy government’s agenda of behavior modification: You can keep more of your money if you do what Washington wants. The tax code, says Camp, “should not be a tool of industrial policy” or of “crony capitalism”: “Politicians should not pick the industry of the day.”

One of Camp’s objections to the health care law is its obvious design to cripple health savings accounts. With HSAs, an individual who buys high-deductible health insurance becomes eligible for tax-preferred savings out of which he or she pays routine health expenses. (No one expects auto insurance to pay for oil changes or new windshield wipers.) This gives consumers of health care an incentive to shop wisely for it. Camp says the health care law will make HSAs less attractive because “a qualified plan will be defined by the government rather than the market.” And government will make HSAs unnecessarily expensive by requiring them to have “all the bells and whistles.”

Many conservatives, including Camp, believe that although most Americans should be paying lower taxes, more Americans should be paying taxes. The fact that 46.7 million earners pay no income tax creates moral hazard — incentives for perverse behavior: Free-riding people have scant incentive to restrain the growth of government they are not paying for with income taxes.

“I believe,” Camp says, “you’ve got to have some responsibility for the government you have.” People have co-payments under Medicare, and everyone should similarly have some “skin in the game” under the income tax system.

In addition to the one-third of the 143 million tax returns filed by individual earners for 2007 that showed no tax liability, additional millions of households have incomes low enough to exempt them from filing tax returns. The bottom two quintiles of earners have negative income tax liabilities — they receive cash payments from the government via refundable tax credits.

Camp remains amazed by the slipshod practices by which banks and other financial institutions made mortgage loans without due diligence. He remembers that “the president of the bank approved my first Visa card.” Other things have changed, too. “I used to do my own taxes,” Camp says, “until I got on Ways and Means.” No more. The tax code is so complex that the chairman of the tax-writing committee, like many millions of Americans, cannot be confident he can properly perform, unassisted, the duty of paying taxes.

If Barack Obama is accurately reported to be considering serious tax simplification and lower rates, he will have an ally in Camp — up to a point. Serious arguments about taxes are never just about taxes. They are about government’s proper size and purposes. Concerning that, Obama differs with Camp, who says: “Washington doesn’t have a revenue problem. It has a spending problem.”

George Will is a columnist for Washington Post Writers Group.

Comments

Tom Shewmon 3 years, 12 months ago

Federal taxation code is fully intended to be as confusing and uber-complex as humanly possible. Republican or Democrat, they know it needs to stay this way for the sake of their jobs, constant huge servings of pork and more than anything; their re-election.

May God Bless.

scott3460 3 years, 12 months ago

First, let's stop buying overpriced military hardware we don't need and then bring home and downsize the number of soldiers sucking welfare off of the government teat. Funny, isn't it, how few repugs ever complain about the welfare dollars handed out via our military.

SnakeFist 3 years, 12 months ago

"The tax code is so complex that the chairman of the tax-writing committee, like many millions of Americans, cannot be confident he can properly perform, unassisted, the duty of paying taxes."

I've heard of studies in which several tax preparation professionals are each asked to calculate taxes owed in a hypothetical scenario, and each preparer arrives at a different result.

In my opinion, the tax code is so complex that it has become unconstitutionally vague, i.e., no one knows with any reasonable degree of certainty that they are not overpaying or underpaying.

jafs 3 years, 12 months ago

Simplification would be a very good thing.

just_another_bozo_on_this_bus 3 years, 12 months ago

This is the basic idea behind the carbon tax, and nothing represents mindless consumption like the consumption of fossil fuels.

just_another_bozo_on_this_bus 3 years, 12 months ago

Revising the tax code is a laudable goal, but not when it's used as a trojan horse for class warfare, as Camp is doing.

Flap Doodle 3 years, 12 months ago

Even Charlie Rangel couldn't understand the tax codes.

beatrice 3 years, 12 months ago

"... it funds Social Security and Medicare. Sometimes it makes young people into conservatives."

Well, at least George Will is willing to admit that conservatives are opposed to Social Security and Medicare. If only conservative politicians would be honest with the people and run on that platform.

Corey Williams 3 years, 12 months ago

Too bad most of their voters were receiving one or the other.

true_patriot 3 years, 12 months ago

It depends on what is meant by "simplify". If it means simplifying all the deductions and closing all the tax loopholes and shelters we could greatly reduce the amount of time it takes to understand and complete tax forms.

But George Will and most conservatives usually use it to mean something entirely different - to kill the progressive structure of it and make it "flat" - everyone pays the exact same percentage of their income, which would result in a grossly unfair distribution when all taxes that we pay are factored into account. Most taxes are regressive (you pay a greater percentage of your income the lower down the income scale you are) and the progressive income tax is the only place to redress that imbalance.

When you hear "flat tax" or "simplify the code", red flags should go up - it usually means another run at redistributing wealth up the income scale is afoot.

Orwell 3 years, 12 months ago

Yes, Mr. Will, sir, you're exactly right. Too many people keep their own incomes as low as possible so they can (1) avoid paying a small portion of a higher income as income tax, and (2) be irresponsible about the size of government.

Jeez, does this guy have any concept of what life is like for a working family living hand to mouth?

Show me how a "simplified" tax would shift the tax burden more to the wealthiest Americans, and I'll be on board; absent that, Will's sophistry is another instance of the continuing stealth class warfare conducted by the Kochs and their ilk.

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