http://economix.blogs.nytimes.com/20...-the-tax-code/This week millions of Americans will be rushing to calculate and file their income taxes — and probably cursing whoever invented this confusing, complicated monstrosity.
Many people will spend money on accountants, tax software or storefront tax-preparation services. The cost in terms of time alone runs to the tens of billions of dollars, with billions more spent out of pocket. The aggravation factor is beyond calculation.
Politicians often rail against the complexity of the tax system as the key source of taxpayer frustration. Historically, however, voters have been unwilling to support meaningful simplification efforts and happily put up with complexity if it saves them in taxes. They seem always to fear that “simplification” is some sort of code word for raising their taxes while reducing someone else’s.
Another barrier to simplification is a loss of privacy. In 2003, the Treasury Department put forward a proposal to create a return-free tax system for most taxpayers, as many other countries have. In essence, the Internal Revenue Service would calculate your taxes for you and send you a bill or a refund.
The Treasury proposal went nowhere, for two reasons.
First, reporting of income and tax withholding would have to increase to provide the I.R.S. with the data needed to accurately calculate people’s taxes. But people have been highly resistant to additional withholding; a law requiring it on interest income was enacted in 1982 but almost immediately repealed after widespread complaints.
The second problem is that the tax system would have to be radically simplified to allow the return-free system to operate.
Radical simplification sounds nice in theory; just wipe the slate clean and start from scratch, many people believe. Two years ago, Alan Simpson and Erskine Bowles, co-chairmen of the National Commission on Fiscal Responsibility and Reform, put forward exactly such a plan.
It would eliminate every single deduction, exclusion and credit in the tax code, which economists call “tax expenditures,” and sharply reduce tax rates to three brackets of 8, 14 and 23 percent.
The current rate structure has six brackets: 10, 15, 25, 28, 33 and 35 percent, with a 39.6 percent bracket scheduled to reappear next year. The Tax Policy Center estimates that individual tax expenditures will reduce federal revenues by $942 billion this year, while all tax expenditures, including those on the corporate side, cost $1.3 trillion.
While the Simpson-Bowles proposal continues to intrigue some people, support proved nonexistent when it was finally brought up for a vote on March 28. The entire Simpson-Bowles plan, including huge budget cuts, received only 38 votes in the House of Representatives. The New York Times reported that it was opposed by both conservative and liberal groups for various reasons.
Even if the tax side of Simpson-Bowles had been considered separately, I doubt it would have done any better. Talk is cheap when it comes to eliminating tax expenditures, but when it comes to actually naming specific preferences that would be eliminated, few are willing to step up to the plate.
Politicians hide behind grandiose plans for wiping the slate clean because they know that support for every specific tax expenditure is very high. In practice, saying that one would eliminate all tax expenditures is meaningless, nothing more than a gesture that avoids confrontation with the cons uencies supporting tax expenditures.
Perhaps the worst offender, in this regard, is Paul D. Ryan, Republican of Wisconsin and chairman of the House Budget Committee, who promises a sharp reduction in tax rates while still balancing the budget. He says that his tax cuts, which would reduce revenues by $10 trillion over the next decade over current law, according to the Tax Policy Center, would be paid for with base-broadening and loophole-closing.
But Mr. Ryan steadfastly refuses to name a single loophole that he would eliminate; he ordered the Congressional Budget Office to assume that federal revenues would rise to 19 percent of gross domestic product from 15.5 percent by 2030 under his plan.
Mr. Ryan’s political calculation is simple. He knows that taking away the tax exclusion for employer-provided health insurance would greatly increase its cost and probably cause most businesses to drop coverage; repealing the mortgage-interest deduction would raise the cost of housing for homeowners and would very likely cause a further drop in home prices; abolishing the charitable-contributions deduction would decimate churches, universities, museums and every other tax-exempt organization; and rescinding the deduction for state and local taxes would vastly raise the tax burden in most states.
Mr. Ryan knows perfectly well that the most popular tax expenditures will never be repealed but pretends that they all will in order to make his phony-baloney numbers add up. The fact is that the vast bulk of tax expenditures, in dollar terms, are immensely popular and deeply imbedded in the economy and society.
A recent study by the Congressional Research Service concluded that it would be extraordinarily difficult to get rid of 90 percent of tax expenditures, leaving at most perhaps $100 billion to $150 billion of revenue that could realistically be realized to finance rate reductions.
So how do we get out of this mess? One idea is to do what Gen. Douglas MacArthur did during World War II — bypass enemy strongholds, leaving them isolated and relatively harmless.
Prof. Michael Graetz of Columbia Law School has proposed what I believe is a MacArthur-like solution to tax reform. He would abolish the income tax for the vast bulk of Americans and replace the revenue with a 12.5 percent value-added tax. People would pay their taxes when they buy things and wouldn’t need to worry about keeping records or filing tax returns at all.
The brilliance of the Graetz plan is that no tax expenditures need to be repealed. He would simply give every family a tax exemption of $100,000, which would eliminate the income tax for 90 percent of those now filing returns. For lower-income people who currently have no net income tax burden or who earn an income tax credit, Professor Graetz proposes a rebate (too complex in its details to spell out here).
The current income tax would be retained with a top rate of 20 percent to 25 percent only for those with incomes above $100,000. But many of them already lose important tax preferences because the mortgage-interest deduction is capped for homes worth more than $1 million under current law and the alternative minimum tax already takes away the deduction for state and local taxes for those in high-tax states like New York.
Professor Graetz first laid out his plan in a 2002 Yale Law Journal article, which was expanded into a book in 2007, “100 Million Unnecessary Returns.” A popular explanation of his plan appeared in the November/December issue of The American Interest, and a detailed analysis by the Tax Policy Center was published in January.
There are many other aspects of the Graetz plan too complex to discuss here. The important thing is the basic idea of avoiding a frontal assault on tax expenditures that is likely to make trench warfare seem tame by comparison and instead just make them irrelevant to the vast majority of Americans.
I think this is a viable proposal that ought to be the starting point for a real debate on tax reform.
Great article. Nice to see another someone call Ryan out on his "plan".
Hm... will the board conservatives here champion Graetz's plan because it would cut out a great deal of government involvement (IRS)? Or will they decry it, because everyone should have to pay "their fair share"? I'm pretty sure I can guess...
The tax system is gamed exactly like the 1% paid for it to be gamed. They'll never let it be changed, unless it's even more in their favor (any and all Repug proposals), and less in the favor of the 99% (any and all Repug proposals).
Looks to me like Graetz's plan isn't much different than the Neil Boortz Fair Tax, just with an income tax for earnings over $100k lopped on top.
Bartlett also seems to be missing the point that the real obstacle to tax simplification is politicians. If you take away a politician's ability to hand out preferential tax treatments, what does he have to offer voters and more importantly potential campaign donors?
you can't fix politicians but you can come up with policies that make sense. hopefully people get behind it and politicians climb on board.
The Graetz plan is interesting in that it addresses what is usually the rallying cry against VAT proposals....they are regressive in nature. With the undisclosed "rebate/refund" targeting low income (my assumption) taxpayers/net credit receivers, he seems to address the regressive nature somewhat. The devil is, as always, in the details.
Politicians make the laws, regs, policies, not Human-Americans.
The 1% owns the politicians, not the disenfranchised voters.
You fantasize an Ideal America where democracy actually works for Human-Americans.
do you ever descend from lofty generalities? please feel free to join the discussion...
I'm no economist, but it seems like he already referenced that part:
Mr. Ryan knows perfectly well that the most popular tax expenditures will never be repealed but pretends that they all will in order to make his phony-baloney numbers add up. The fact is that the vast bulk of tax expenditures, in dollar terms, are immensely popular and deeply imbedded in the economy and society.In essence, you wouldn't eliminate a politician's ability to hand out preferential tax code treatment, but you would nullify the need for it in a great many cases. (Of course, politicians would probably put exemptions on the value-added tax for certain items and we'd end up in the same boat...)The brilliance of the Graetz plan is that no tax expenditures need to be repealed. He would simply give every family a tax exemption of $100,000, which would eliminate the income tax for 90 percent of those now filing returns.
I made my points.
I don't get into sterile debates and academic bull ting.
I'd like to see anybody:
1) come with a tax reform even close to what's proposed above
2) elect ENOUGH (or even one!) politicians that will vote it into law.
3) get it, intact, past the 1%er's lobbyists at the rule-making stage
ain't NEVER gonna happen, for the simple reason I gave above.
yes you did, Johnny-one-note...I made my point.
my few, simples notes ring true, your random, academci, bull notes ring false.
What's your plan for actually getting Bartlett's or anybody's major tax reform into law?
I have no plan for getting tax reform passed. do you?
lol @ true.
banal generalities aren't a subs ute for reasoned discussion.
And if discussion isn't your game, what the are you doing on a discussion board? Some weird self-validation trip?
It's much easier to maintain utter contempt than to dip into discourse.
At this point I am all for something, ANYTHING.
The tax code is far, far, too complex.
VAT tax, flat tax, whatever works.
The solution in the OP is one I could go for.
I thought the same thing reading it. I wonder why wh agrees with this but not the fair tax
not sure that I ever passed comment on the Boortz fair tax specifically or endorsed this plan, but both are worth discussing -- our system of taxation is pretty much insane.
Weren't you against Cain's 9-9-9 plan? Which was supposed to be his 1st step towards eliminating the income tax entirely and going to just a sales tax.
I'll bet the reason it that it takes power away from congress.The New York Times reported that it was opposed by both conservative and liberal groups for various reasons.
Congress would have to pass it for it to become law....
no.
$100k is way too much. I would love paying thousands less each year, but I strongly believe it would create more people desiring a bigger government since less will be paying for the bigger government.
I will not budge from my argument that we need more tax payers. Not less.
Certainly that, but there were also a bunch of cuts to defense and en lements that went against red team and blue team's respective playbooks.
Here's why the tax code won't be modified significantly (unless to reduce for the 1% and increase for the 99%)
These guys have $100Ms available to buy the tax policies that protect and enrich themselves
Twenty-Six Major Corporations Paid No Corporate Income Tax for the Last Four Years, Despite Making Billions in Profits
Last year, Citizens for Tax Justice found that 30 major corporations had made billions of dollars in profits whilepaying no federal income tax between 2008 and 2010. Today, CTJ updated that report to reflect the 2011 tax bill of those 30 companies, and 26 of them have still managed to pay absolutely nothing over that four year period:
– 26 of the 30 companies continued to enjoy negative federal income tax rates. That means they still made more money after tax than before tax over the four years!
– Of the remaining four companies, three paid four year effective tax rates of less than 4 percent
(specifically, 0.2%, 2.0% and 3.8%). One company paid a 2008-11 tax rate of 10.9 percent.
– In total, 2008-11 federal income taxes for the 30 companies remained negative, despite $205 billion in pretax U.S. profits. Overall, they enjoyed an average effective federal income tax rate of –3.1 percent over the four years.
Amongst the 30 are corporate ans such as General Electric, Boeing, Verizon, and Mattel. The only four companies that slipped into positive tax territory were DTE Energy, Honeywell, Wells Fargo, and DuPont, with DuPont the only one that paid more than 4 percent over the four years.
Corporate taxes in the U.S., contrary to the constant protestations of conservatives, are at a 40 year low, with many of the most profitable companies paying nothing at all. CTJ noted that “had these 30 companies paid the full 35 percent corporate tax rate over the 2008-11 period, they would have paid $78.3 billion more in federal income taxes.” And this is not a problem that only afflicts the U.S., as the UK found out last week that online retailer Amazon made billions in sales in 2011, while paying nothing in corporate taxes.
http://truth-out.org/news/item/8432-...ons-in-profits
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