Readers offer ideas for tax reform but doubt it will happen.
To the Editor:
While Occupy Wall Street and the Buffett tax focus on the top 1 percent, many more Americans should expect to pay additional taxes regardless of who becomes our next president. When the economy recovers sufficiently, Congress must consider eliminating the 2001 and 2003 Bush tax cuts for most taxpayers and other tax breaks.
Raising taxes only on the top 3 percent or so—couples with $250,000 or more of income, and others with more than $200,000, as President Obama advocates—yields far too little revenue to sustain basic government programs most Americans embrace and to bring down the nation’s unsustainable deficits. Extending the Bush tax cuts to the bottom 97 percent would likely reduce revenues by more than $2 trillion in just 10 years.
Any additional income taxes should come from fundamental tax reform. With interest deductions on up to $1 million of home mortgage loans, a free pass on unlimited health insurance paid at work and myriad other tax breaks, our current system shelters at least half of all individual income from income tax—$6 trillion or so last year. Consequently, the tax liabilities of the bottom 97 percent, as well as the top 3 percent, too often depend on their ability to avoid taxes.
By addressing tax breaks that make neither social nor economic sense, Congress would advance a basic tenet of tax fairness: equals should pay equally. For example, families of equal size with equal incomes would generally pay the same amount. People who previously benefited disproportionately from tax breaks would pay disproportionately more of any additional taxes. And with far more income to tax, Congress could collect more revenue yet lower tax rates on wages and salaries, and tax unearned and earned income at the same rates.
Best of all, this simpler, fairer system would promote economic growth. Yes, fundamental tax reform would be good for America.
JOHN O. FOX
Amherst, Mass., May 8, 2012
The writer is a former tax lawyer and is updating his 2008 book “10 Tax Questions the Candidates Don’t Want You to Ask.”
Any time you hear the word “reform” in American politics, you can be 90 percent certain that you’re being deceived, and when you hear “tax reform,” that little bit of uncertainty should disappear. Everybody wants tax reform, but to conservatives that means further cuts (despite our tax rates being at historic lows), to liberals it means taxing the rich (despite the fact that it would raise insignificant revenue), and to everyone in Congress it would mean preserving the tax breaks that go to their biggest donors.
And it’s the last point that speaks to our nation’s central problem. The great contribution of democracy to the history of civilization was that it broke the age-old link between money and power and redistributed power to everyone, one vote at a time.
What we are now living through is a crisis of counterreformation, in which the corrosive influence of money in our politics, made quasi-legitimate by the Supreme Court’s catastrophic decision in Citizens United, has made the government more responsive to the donor than to the voter. It has made the democracy nearly moot.
This is why we have a population that supports Medicare and Social Security and the Veterans Administration and student loans, to name just a few popular government programs, but we have a Congress that wants to defund them. Our democracy is broken, it was broken by money, and to fix it we must get the money out.
So should our tax code be simplified? Sure. Should loopholes be closed? Of course. But as long as our lawmakers are primarily beholden to fund-raisers and lobbyists, any proposed tax reform will go nowhere.
New York, May 9, 2012
Tax reform based on “simplification” and sharply cutting exemptions might be good in the short run, but in the long run it may prove to be a Trojan horse. Look to history.
The Reagan-era tax reform law sharply reduced exemptions, lowered income tax rates and equalized taxation of unearned and earned income. This trade-off of “simplification” and lower tax rates is the essence of Mr. Fox’s recommendation.
The trade-off was ultimately a bad bargain. Tax rates have remained low, especially for the highest-paid, but exemptions have proliferated; rates for capital gains and dividends have been reduced below those for earned income.
If history repeats itself under the banner of tax reform, ordinary Americans will end up stuck with a higher fraction of the tax bill. Moreover, the resulting loss of tax revenues could impel additional retrenchment of the federal budget. To avoid this, any tax reform will require measures that prevent it from being undermined during later years.
MICHAEL N. ALEXANDER
Lexington, Mass., May 9, 2012
Income tax in modern form came into being only in 1913 through the 16th Amendment. For most of the first 137 years of our Republic, we had no income tax at all. We need to return to our roots.
The concept of an income tax is flawed both in practice and theory. Taxing consumption rather than income allows the unfettered accumulation of wealth, encouraging production; you pay taxes only when you spend. The economy and the environment both benefit by taxing that which really has societal costs.
This is both progressive and regressive: progressive because our tax burden is proportional to ability and willingness to pay. Regressive because the poor will pay a greater percentage of their total income on consumption tax.
The regressivity can be partly offset with savings from dismantling the Internal Revenue Service (about $13 billion) and through measures like exempting food and social necessities.
Taxing income makes little sense. Time to call this a failed experiment.
Spicewood, Tex., May 9, 2012
Mr. Fox’s suggestions are sensible and can generally be backed up by sound economic data. Whether they could ever be enacted is another issue. As long as Congressional action can be blocked by a minority that refuses to countenance any change that can be construed as a tax increase, I see no prospect for genuine income tax reform.
Another problem that Mr. Fox brushes over is that for many people certain tax breaks do make some social or economic sense. Personally, I think there are valid social reasons to encourage savings, charitable giving and homeownership.
Rather than abolishing these tax benefits outright, I would impose reasonable restrictions, like limiting mortgage exemptions to a single home of moderate size, tightening the definition of charitable organizations, and providing some tax relief for interest and dividends only when accrued in retirement savings accounts of reasonable size.
I also see the growing disparity in wage and income levels as having serious potential social effects that can best be counteracted by a more steeply graded tax structure. Unfortunately, given the ability of special interest groups to provide unlimited financial support to their selected candidates, I do not expect to live long enough to see any of these ideas adopted.
JOHN D. ALDEN
Delmar, N.Y., May 9, 2012
Not all income is equally socially beneficial. I suggest that the tax code be based not on just the quantity of income but the quality as well.
For example, if someone makes $100 million from curing a disease or a technological breakthrough that helps society, then he or she should be taxed at a lower level than someone who makes the same amount as, say, a lottery winner. The tax system makes moral distinctions already when it does not tax charitable contributions or creates tax-free economic zones to promote economic development, so why not go one step further and have the tax code reflect the fact that not all income is equally socially useful?
To be sure, many questions need to be answered about the implementation of this policy, but a discussion about how income is earned and whom it benefits should, I think, be part of any debate on taxation.
Terre Haute, Ind., May 9, 2012
The writer is a professor of philosophy at Indiana State University.
When I was in law school some 50 years ago, I took a course in federal income taxation. All I remember from that semester is the professor saying that only 10 people in the country understood the Internal Revenue Code and its regulations, and that he wasn’t one of them.
In all the years since, just about every political leader has called for some kind of tax reform, but all that has happened is the expansion of the code with lots of new paragraphs understood only by those for whom they were written. A fair and simple system seems to be an impossible dream.
RONALD B. HELLMAN
Douglaston, Queens, May 9, 2012
The Writer Responds
Many of the letters in response to my proposal for fundamental tax reform understandably express deeply felt cynicism about this dysfunctional Congress.
Only a relative handful of Americans now believe that Congress will do the right thing, compared with a majority of Americans some 50 years ago.
Noting how the tax laws have become increasingly impenetrable, Mr. Hellman concludes that “a fair and simple system seems to be an impossible dream.”
Trillions of dollars of debt pile up because Congress refuses to require Americans to pay for the programs they want or the wars we fight. And the corrosive influence of money on politics, as Mr. Berman writes, magnified by Citizens United, “has made the government more responsive to the donor than to the voter.”
But we owe our children and grandchildren, and our country, something better. Moreover, history teaches us not to discount the possibility of real change even in the darkest of times.
Mr. Schweitzer favors replacing the income tax with a consumption tax, yet admits that it would allow “the unfettered accumulation of wealth,” which would be better addressed by a progressive income tax on all forms of income.
Mr. Alden would like to see the reforms I suggest accommodate more focused deductions to encourage homeownership, charitable gifts and savings. But any deduction saves the most taxes for people in the highest marginal tax bracket, rather than helping most those who need the most help. Equitable tax credits would offer a better compromise.
Mr. Alexander worries that real reform, which he favors, will unravel over time unless Congress puts in place “measures that prevent it from being undermined during later years,” a worthy if complicated recommendation.
I’ll continue to promote the benefits of a fairer, simpler and more economically productive income tax, and just maybe, someday, we will elect enough leaders capable of restoring that once honorable idea that we are the “United” States of America.
JOHN O. FOX
Amherst, Mass., May 10, 2012
Note from KBJ: The letter from Joseph Grcic made me laugh. If the tax rate one pays is a function of how "socially beneficial" one's work is, then philosophers such as Grcic would pay the highest rate of all. Maybe he's irony-impaired.