Now this is tax reform

Now this is tax reform
By Don Campbell; Jan.5, 2005

When George W. Bush started talking about simplifying the federal tax code three years ago, I predicted in this space that the tax code would be longer the day he left the White House than when he took office. He subsequently pushed through two major tax cuts that made the tax code even longer and more complicated.
Since this is the season for forecasts and resolutions, I'll confidently renew that prediction even though Bush will have four more years to carry out his pledge. And I'll invite all Americans who are fed up with the system to join me in making this (belated) New Year's resolution: I will never, ever, believe politicians who say they are serious about tax simplification. They'll never get serious unless taxpayers make them feel the heat. Now is the time to do just that.

'Study' isn't action
Bush may believe his own rhetoric about tax reform, but his actions belie that. With re-election behind him, he's naming a panel to "study" tax reform, which is the oldest dodge in the book. And he reportedly has already ruled out eliminating the kinds of tax preferences — such as deductions for mortgage interest and charitable giving — that would lead to meaningful reform.
Meanwhile, with the tax code and supporting regulations now consuming some 9 million words and more than 60,000 pages, Bush is looking for new ways to use the tax code to encourage investment — all at the expense of simplicity.
Everybody likes to gripe about how maddeningly complex the tax code is, but few people are willing to give up the loopholes that make it that way. I sometimes wonder whether I'm the only person in America who is serious about tax simplification — I am certainly the only person I know who is.
Bush should pledge to return the tax code to the simple function for which it was originally intended: collecting revenue to run the government. For individuals, that would mean a graduated tax on gross income with no deductions, no exemptions, no credits — no exceptions. For example, if you earned $78,422 in wages and investment income, you'd be taxed on $78,422. That simple. Obviously, your tax rate would be lower than if it were based on taxable income, as it is currently calculated.
The tax code I envision would have only three sections and would be no more than a couple hundred words long. In fact, the first section would comprise just five words: "All income shall be taxed." The second section would define income as anything of monetary value accrued each year: salary, wages, commissions, pension benefits, capital gains, dividends, interest, lottery winnings, prizes, gifts, inheritances, etc. The third section would set the tax rates and be updated annually.
This is a radical notion only if you believe that the primary purpose of the tax code is to manipulate the economy and achieve certain social objectives. But you can't have both simplicity and scores of deductions aimed at every segment of society and every lifestyle decision.
Two basic principles would govern my plan: Everyone with an income would pay taxes, because everyone with an income should share in the cost of government. But the amount would be based on ability to pay. The principle of progressive taxation is sound. The reason a flat tax or national sales tax will never fly is that — without the same burdensome exemptions and deductions built into the income tax — either would penalize the working poor and the middle class. There's no point in trading one complicated scheme for another.
The tax I envision would start at 1% or 2% for those making less than $10,000 a year, and then increase gradually in increments of $10,000 to $15,000 to some level, perhaps $250,000, above which all gross income would be taxed at a rate of 20%-25% — to raise roughly the same revenue that the loophole-riddled system now collects.

Needed disruptions
The critics will say such a change would disrupt the economy — and they're right. Buggy manufacturers said the same thing when the automobile was invented. It would be tough on CPAs and tax lawyers and charities. The home-building and real estate industries, which depend on the mortgage deduction to fuel demand for ever-bigger houses, would take a hit. Wall Street, which depends on tax preferences to promote investing, would face a period of adjustment, as would many government agencies, which depend on tax-free bonds for capital projects.
But imagine how much simpler life would be if we didn't base so many decisions on their tax consequences and then have to make sense of them on April 15. What if everyone — married, single, parent, childless, homeowner, renter, investor, borrower — were treated the same way by the tax code?
My wife and I claim tens of thousands of dollars a year in deductions and exemptions to cover our kids, a large mortgage, a confiscatory real estate tax, charitable giving and other items. I would give up all of those tax breaks in a heartbeat for a simple one-page tax form that taxed all income and left me with a tax bill comparable to what I pay now. One that I could figure out in about five minutes.
There must be other Americans who feel the same way, although Bush apparently is not one of them.

Don Campbell, a member of USA TODAY's board of contributors, lives in Atlanta.