The old saying goes, “You can tell a lot about a man by looking at his shoes.” Well, I can tell a lot about our government by looking at our tax code. It’s inefficient, bloated, and wasteful. More than that, judging by the innumerable exclusions, exemptions, deductions, and credits that reward certain behaviors, I’d say they want us to own houses, go to college, buy green products, and have life insurance.
These, and countless other tax code complications, are costing the federal government more than $1 trillion in revenue, and the average tax filer 26 hours in lost time. As the debate over whether or not to extend the Bush tax cuts rages on, I argue that a much more important task lies ahead--fundamental reform of our tax code.
The tax code is a growing mess. Since 2001, the code has averaged more than one change a day. It has grown so long that nobody is exactly certain of its length. As of 2009, it was approximately 67,204 pages, about twenty times the size of the entire Harry Potter book series, and eminently less readable.
Cleaning up the tax code clutter is an issue that could garner bipartisan support. Democrats should jump at the idea of reducing the deficit without making significant cuts to any programs (though that must certainly be part of any long-term solution to our deficit problem). Republicans should cheer the idea of spending cuts.
No, that wasn’t a typo. Eliminating tax deductions is really a form of lowering spending—the primary component of any conservative deficit reduction plan. Even the tax code identifies them as such, calling them “tax expenditures” because they are, quite simply, spending programs implemented through tax policy. As Nicole Gelinas recently wrote for City Journal:
Tax breaks, after all, are simply a pernicious way for the government to spend other people’s money. Washington doesn’t get the money to bestow mortgage-interest deductions out of thin air. It gets that cash from renters and other taxpayers who don’t take this deduction, or who have saved more and borrowed less to buy smaller homes. Similarly, a wealthy Texas taxpayer must pay more so that a wealthy New York taxpayer can deduct the cost of his much higher state and local taxes from his federal return.
When it comes to wealth redistribution, Congress is a wily bunch. In an age when new government spending is akin to career suicide, politicians had to come up with under-the-radar ways to achieve the same social engineering goals. Rather than create a program out of tax revenue, which would likely cause a tremendous uproar, they simply dressed up a tax cut to encourage the same outcome, but instead they are cheered for it. As C. Eugene Steurle of the Urban Institute said, “One looks like smaller government. One looks like bigger government. In fact, they both do exactly the same thing.”
Congress now has the opportunity, the incentive, and the motivation to change this backward system. The debate over the Bush-era tax cuts are dominating the headlines. Republicans, and a smattering of conservative Democrats, argue that it’s foolish to raise taxes on anyone given the sluggish economy. Democrats counter that for a government in dire need of revenue, raising taxes on the nation’s top earners is a no-brainer. But scrubbing the tax code and replacing it with reforms similar to the Wyden-Gregg bill or Paul Ryan’s tax plan could short circuit the largely political debate over whether we should increase taxes on the rich. [Check out a roundup of political cartoons on the economy.]
Each of these plans accomplishes something that merely extending the Bush-era tax cuts does not. They simplify the code, create a lasting framework that doesn’t need to be revisited in two years, reduce government meddling in the economy, and most importantly for the average citizen, they accomplish it all and still lower tax rates!
You can tell a lot about our government by looking at our tax code. Perhaps you can tell more by looking at their seeming unwillingness to change it.