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
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
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.
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
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.