A tax professional looks at tax issues in the 2004 race.
Disclosure: I am not an accountant or a lawyer. I do not prepare tax returns. I am not a tax analyst. I am the founder of a seminar training business that teaches people who work in corporate accounting how to comply with tax information reporting requirements of the IRS and the states. As such, I have been reading tax legislation since 1982.
Recent tax history: the pendulum swings from tax simplification to tax uglification.
Reagan's gut issue as a conservative was high marginal tax rates. During his career as a screen actor he faced marginal rates in excess of 90%. But no one paid 90% of their marginal income in federal tax except the chumps who, out of patriotic fervor or ignorance of the many hidden tax breaks that a tax professional could put you into, stupidly paid the going rate.
The crowning achievement of the Reagan administration was the Tax Reform Act of 1986. It eliminated many of the tax dodges (but keeping the home mortgage interest deduction) in exchange for a overall lower rate schedule. The anti-tax types howled in complaint at the loss of their treasured tax shelters until they saw how much better over all they would come out of the deal with the lower rates.
But the politicians couldn't leave well enough alone. Even though politicians love to run against the complexity of the tax code, they cannot resist proposing some twist to the tax code that would deliver some benefit. Medical Savings Accounts. The plethora of retirement tax advantaged accounts. Lifelong learning and Hope scholarships. Earned income tax credit. Alternative minimum tax. Holding period specific exceptions to the capital gains tax rate.
Politicians harvest votes by denouncing the complexity of the tax code, but they are the only ones who make it that way. Meanwhile, half the taxpayers in this country really don't need to file tax returns; their tax situation is simple enough that just their W-2's and 1098 mortgage interest paid, along with 1099-INTs could tell the whole story such that IRS could send these taxpayers a postcard telling them how much they owe or the amount of refund they will receive.
What politicians have really done is use the public's anger about taxes to sabotage the system on behalf of the wealthy. When the Republicans gained control of the Senate, one of the first things they did was hold hearings to demonstrate that the IRS was overbearing in their administration of the tax system. The hearings featured taxpayer testimony of the unreasonable scrutiny and abuse they suffered at the hands of IRS goons. No counter argument was allowed at these hearings (otherwise, it would have been revealed that the taxpayers decrying their ill treatment were in fact notorious tax crooks who just happened to contribute handsomely to certain Republican Senate candidates). The result was an IRS reform act that severely restricted the IRS budget and provided new rules under which the IRS would administer the tax system. Plus, a new IRS commissioner pledged to convert the IRS to a taxpayer friendly agency.
With the budget slashes, the IRS no longer has the means to go after tax cheats. In particular, Congress has directed the IRS to expend resources to discover whether taxpayers have unfairly claimed the Earned Income Tax Credit, a benefit paid to the working poor.
So we have two tax systems in this country. One for wage earners; the chumps who actually pay what they owe (or something pretty close to it) because their income is reported on a W-2, and a second tax system for the wealthy, who have little reason to restrain their tax cheating through underreporting or non reporting of taxable income. The hoodlums have taken over, and they are making fools of the rest of us.
Coming:
Part II: How the Republicans have taken a tax system that is the envy of other liberal democracies, and are converting it to a system to be ashamed of.
Part III: Corruption in the tax business:They used to be "The Big Five." What are they now; "The Final Four?"
Part IV: The Clark Tax Proposal: Good and Bad
Part V: The Dean Tax Proposal: unfinished business.
Part VI: How a Democracy Taxes Itself