When Tax Reform Means Tax Dodge

An all’s-right-with-the-world politician like George W. Bush faces special problems. Since everything is hunky-dory, the only thing to do on the job is smile your coprophagic grin, raise money for the party and lead the multitudes in prayer. God answers prayer, at least those addressed to him by George W. Bush. When the Twin Towers came tumbling down, it gave the clueless Prexy an item for his meager agenda. I’m not suggesting that God and the President conspired to bring on the disaster, but he has milked 9/11 for all it’s worth.

Without bringing the people responsible for it to justice, Mr. Bush has moved on to Iraq with only mixed results from a political point of view, although-God bless him-throughout the incidents of terror and the mobilization for war, he never once stopped raising money for the party. If that isn’t “U.S.A.! U.S.A.! U.S.A.!” patriotism, what is?

Even so, the threadbare nature of his program or the lack thereof does come through. Not that he has no tricks in his bag. There’s his program for keeping pregnant teenagers from getting hold of wire coat hangers, his standing tough, tall and stiff on executions and tax reform. This last item seems to be the one real thing he’s interested in.

Every few months, stories drift out of the White House to the effect that Mr. Bush is thinking about tax reform again. Such stories sometimes point out that, as governor of Texas, when he wasn’t enjoying a hanging, he helped push through changes in that state’s tax laws. With all his drawbacks, if Mr. Bush were able to effect significant changes in the nation’s tax code, he would be a candidate to be listed up there with Moses and the other great lawgivers of history.

Whenever the tax subject comes up, it divides itself into the issues of a) fairness and b) complexity. Of course, when complexity and confusion reach the point that they have in our tax system, complexity becomes a form of unfairness. Our likable if somewhat goofy Secretary of the Treasury, Paul O’Neill, has cried out, “The thing is a colossal mess.” Charles O. Rossotti, the I.R.S. commissioner himself, has been quoted as saying, “Most informed observers are justifiably horrified at the complexity …. The cost of taxpayer compliance with this code is [more than] $80 billion per year, more than eight times the cost of the I.R.S. budget. The sheer size and complexity in itself can be a source of disrespect for the law. Therefore, it is a worthy, though difficult and uncertain, challenge to pursue simplification to the maximum extent possible.” Some students of this mess put the total cost of paying our taxes as much as $35 billion higher than Mr. Rossotti’s figure.

What’s bad news for some is a bonanza for others. Those tens of billions in costs are going into the pockets of tens of thousands of tax preparers who are organized and love complexity as much as the rest of us hate it. Whether they will ever have to lobby to keep this burden on our backs lest reform break their rice bowls is highly doubtful. There are other and stronger forces at work to keep the tax mess messy. Recall, if you please, that we had what was called a tax reform in 1986 under Ronald Reagan, and you can see where that has led.

Any disentanglement-even one that everybody gives every outward appearance of agreeing on-is beyond the power of those in power. Let’s take, for example, the child-definition conundrum. For tax purposes, there are no less than five conflicting definitions of what a child is, the earliest being 13 years old, the oldest 24. Try as they might-and they have been trying mightily-the not-so-powerful powers-that-be in Congress and the administration haven’t been able to tell what, pray tell, a child might be.

Not even the growing threat of the “alternative minimum tax” monster has been able to drive the Congressional herd toward doing something in the way of alternative minimum reform, even as the thing increasingly stings the very voters who sent those cattle to Congress. The A.M.T., as it is often called, was passed years and years ago to prevent extremely rich people from coming up with so many deductions that they ended up paying no income tax whatsoever.

Unhappily, as is not infrequently the case, the law was so poorly drawn, and with so little prevoyance, that now, as its various mechanisms come into play, it is taking away deductions and driving up the tax payments of the not-at-all-rich. You would think that, as with the marriage penalty, they would do a little fix here and a little fix there, thereby restoring the A.M.T. to what it was intended to do-but you would be mistaken. The A.M.T., as a tax on the middle classes, is already beginning to bring in significant amounts of revenue, so they’re going to leave it alone for the nonce. It may hit retirees with particular force, but what the hell-if they can take the hit from the stock market, they can stand another one from the government.

Reports have it that the administration is taking a look at doing away with the income tax and going to something entirely different and presumably simpler-although after the lobbyists have finished bribing everyone in sight, only those with great faith in the wisdom of the founding fathers can believe that something simpler will actually emerge onto the statute books. None of the three leading ideas is based on progressivity-that is, the principal that those who have more should pay a larger proportion of what they have in taxes.

One of the ideas being considered is a national sales tax, which whomps lower-income people in the teeth. The argument for it is that lower-income people are getting whomped already and that, believe it or not, they might get whomped a little less with a national sales tax. If there is no income tax at all, the national sales tax would probably be quite a bite. It could be a 23 or 33 percent add-on to everything we buy. But if all tax dodges are done away with, an ordinary office worker might conceivably come out ahead-if, if, if. One other aspect of a national sales tax recommends itself: Every time we buy anything, we’ll be reminded of how much our government is costing us, which may give us a chance to decide if we’re getting our money’s worth-and if not, what we might want to do about it.

Another system being scrutinized is the value-added tax, which is a tax on every movement of business and commerce. Every step of the way, from the transformation of a grain of sand into a delicate silicon wafer upon which a computer circuit is imprinted, an invisible tax is levied. The plus of such a system is that, since it’s out of sight, it will be painless-at least to the extent that costs you don’t see and don’t know about are painless. On the minus side, that which is out of sight is that which is easiest to finagle with. Depend upon it: Under a value-added system, some people are going to get their value added to at the expense of others-and I leave it to you to speculate over who will be the winners and who won’t.

Finally, we have the famous flat tax. It, too, is being studied. Well, we already have a flat tax-the Social Security tax-and we know how that works: Everybody pays the same percentage of their compensation up to $80,000, and then C.E.O.’s who make those hundred-million-dollar salaries get to not pay a single farthing more. Thus, from the actual operation of the limited flat tax now up and running, we know that only lower- and middle-income people will pay it. The rich will get out of their obligation as they presently do, because for them, it’s not progressive taxation or capital-gains taxation or whatever kind of taxation they object to: It’s every kind of taxation. They don’t want to pay their taxes, pure and simple. Let’s be honest about this. The rest of us don’t want to pay our taxes, either, but we don’t have the clout to rig the tax laws and the rich people do.

If the insider poopers have it right, George is going to pick one of these schemes to fight the 2004 election on. If the special-interest squabbling makes that impossible, there’s always the hope of another New World Order war dividend.

When Tax Reform Means Tax Dodge