Commentary

The Most Taxing Time of Year

This article appeared in Copley News Service.

If only the election fell on the first Tuesday after the second Monday in April. Taxpayers would then see how much of their income had been seized by government before voting. They would feel the real cost of the supposed benefits provided by spendthrift politicians, enabling them to make a truly informed electoral choice.

Only a public outcry is likely to stiffen the backbone of congressional Republicans, whose watchword these days is pre-emptive surrender. Absent a miracle, the budget will grow and regulation will expand, just like under the Democrats.

Even worse, tax cuts — the supposed “crown jewel” of the original Contract With America — seem to grow ever most distant. House Speaker Newt Gingrich’s reaffirmation of his support for income tax reductions cannot undo the damage caused by his proposal to hold off debating taxes until Congress passes a balanced budget, after which the GOP loses its leverage over the president.

Real reform is even less likely. Majority Leader Richard Armey, R-Texas, says that he expects “very little change in the tax code” this year. Yet it is fundamental change that is most likely to generate popular interest and support. Americans don’t like the current system, which they perceive to be simultaneously incomprehensible and unfair. Thus, they want Congress to do more than tinker — especially when the latter means the sort of social engineering favored by the left.

Legislators of either party who believe in limited government need to push for three-pronged tax reform: reduction, accountability and simplification. Most important, Congress should lighten the tax burden, and the best means of doing so is to cut income tax rates across the board. The reason is simple: Taxpayers deserve relief. The Tax Foundation figures that Americans didn’t finish paying their taxes last year until May 7.

Adding the cost of deficit spending and regulations means that people effectively worked for the government until July 3, according to Americans for Tax Reform, another Washington group.

The fairest means to reduce this burden would be to slash tax rates for all Americans. Bob Dole’s proposed 15 percent cut would be a reasonable start, though a 25 percent or 30 percent reduction would be even better after years of tax hikes under George Bush and Bill Clinton. Other good ideas include reducing capital gains and estate levies, which perversely punish the capital accumulation that is so critical for economic growth.

The tax burden also needs to be made more visible to people. Withholding, under which workers never see their money before the government grabs it, should be replaced by a system of quarterly tax payments like that now used by the self-employed. Workers would receive their full income, and then pay the IRS.

At the same time, companies should voluntarily implement the Right to Know Payroll as proposed by Michigan’s Mackinac Center. For each employee, firms would list the overall payroll benefit level and subtract expenses that the employee never sees (payroll taxes, administrative costs), yielding the traditional gross pay number.

Finally, Congress should move toward either a flat income tax or a national sales tax. The first would greatly simplify the task of figuring out what was due. The second would entirely eliminate the individual compliance burden, along with intrusive IRS enforcement practices.

This sort of tax reform is not an ivory tower dream. Former IRS Commissioner Fred Goldberg opines that tax reform is “the only way to liberate the American people from a system that is grotesquely burdensome and monstrous.”

A recent survey of 275 IRS workers found overwhelming support for tax simplification. If the apparent beneficiaries of the system support real reform, why don’t the supposedly revolutionary Republicans? Why doesn’t the president, who so publicly feels our pain?

If nothing else, legislators of both parties should take a principled stand in order to reap political gain. A postelection Survey USA poll found that two-thirds of Americans wanted tax cuts for everyone, compared to just 28 percent who favored targeted reductions, a la Bill Clinton. Tax reform would likely prove to be even more popular. After all, Americans now say the most frightening words they could imagine hearing over the phone would be, “This is the IRS calling.”

Every tax season seems to end up the same. People pay too much in taxes. People spend too much time trying to comply with the tax laws. Congress does nothing. The president does nothing. If 1997 turns out to be the same, people should remember - and hold Congress accountable when they vote in 1998.

Doug Bandow is a senior fellow at the Cato Institute.