Wednesday, November 02, 2005

Tax reform, the emperor's new coat...

I want to follow up on some shots I took at tax reform at Polipundit...

During the upcoming debate, expect to hear from its proponents a lot about how complex the tax code is and how these proposals will simplify matters. DON'T BELIEVE THE HYPE! This 'reform' is analogous to a corporate reorganization that we've all probably been through (at least once). There is lots of talk about how the reorganization will make things more efficient... but when the dust settles, it hasn't. And the same will hold true with this reform package. It will do nothing more than shift the chairs around a bit. Some provisions will be eliminated, but others will be added to take their place. And proof that the code will be just as complex will be found in that there won't be any fewer pages in the tax code than there are now.

You should also try to keep in mind that the real problem with the tax code is not its 'complexity'. The vast majority of taxpayers have relatively simple tax returns; $30 for some software and a couple of hours is all most taxpayers need to complete their returns. This reform package won't make things any easier.... and, even if it did save the average taxpayer an hour or two, that isn't enough to make the whole thing worthwhile.

The real problem with the tax code is the amount of money it sucks out of the pockets of taxpayers. And since this reform package is supposed to be 'revenue neutral', just as much money will be sucked out of our collective pockets afterwards as is being done now. Just repeat this over and over again: Revenue neutral means NO SAVINGS...

Expect to hear lots of talk about how this proposal will eliminate the AMT and how this will benefit millions of taxpayers. DON'T BELIEVE THE HYPE! How does it help us to eliminate the AMT (which I already pay) if you're just going to raise our taxes in other ways to offset the 'cost' of eliminating the AMT? Likewise, expect to hear a lot about how the tax brackets will be flattened somewhat and how this will benefit millions of taxpayers. DON'T BELIEVE THE HYPE! Again, what difference does it make in the long run if there are fewer tax brackets if a number of deductions are eliminated in order to pay for the 'cost' of flattening the brackets? And the same will hold true for allowing the self-employed the same tax treatment for health insurance premiums as currently available for salaried workers... repeat after me, revenue neutral means dollars just get shifted around, we collectively end up paying just as much after 'reform' as we are paying now.

Actually, the reform package will amount to a giant tax on higher income brackets. The reason for this is that Bush (in the form of his commission) will throw in some goodies for the lower brackets, in order to appease the Democrats and try to build some popular support (voters are not going to get excited about tax reform; they only get excited about tax cuts). And, since the reform package as a whole has to be revenue neutral, it will be the higher brackets that end up paying more in taxes so the lower income taxpayers (who already pay a small part of their income in taxes and a relatively small share of the nation's overall tax bill) can get some token savings thrown their way.

Maybe it's just that I am on an anti-Bush roll lately, but this reform idea is one of his dumber ideas (after staying in Iraq, Harriet Miers, amnesty for illegal aliens, opening the federal treasury to pay for rebuilding after Katrina). And it's an idea that someone who's not that smart would actually rally around. It sounds good... but only in theory. It requires actually knowing something about the subject to be able to see through the smoke and mirrors its advocates have kicked up... and see it for the joke that it is..... which, unfortunately, is more than we can expect from our President.