Killing Off The Tax Code

It will never happen.

Two months ago, Rep Bob Goodlatte (R, VA) sponsored H.R. 352, the “Tax Code Termination Act.” Since then approximately 70 additional Representatives have jumped onboard.

What does the bill propose to do?

Starting in 2018, the bill would eliminate individual, corporate, partnership and estate taxes. Payroll taxes and self-employment taxes would survive.

Congress would have until July 4, 2017 to propose and enact a new tax system to replace the current.

What is the purpose? Here is Representative Goodlatte’s explanation:

It has become abundantly clear that the tax code is no longer working in a fair manner for our nation’s citizens. Many Americans look at the dim state of our economy, and the billions of their tax dollars that are being given to private businesses and they want to know why they cannot keep more of their hard earned tax dollars. The tax code Americans are forced to comply with is unfair, discourages savings and investment, and is impossibly complex. It has become too clear that the current code is broken beyond repair and cannot be fixed, so we must start over.”  

He is not so much proposing the permanent abolition of the tax system as proposing a drop-dead date for its replacement. Why?

Although many questions remain about the best way to reform our tax system, I am certain that if Congress is forced to address the issue we can create a tax code that is simpler, fairer, and better for our economy that the one we are forced to comply with today.”

Congress won’t reach a consensus on such a contentious issue unless it is forced to do so.”

The bill is skeletal, and it does have an odd provision requiring a future Congress to meet a two-thirds majority to delay or repeal the bill.

Predictably, the very act of sponsorship has pushed the usual political suspects into a jeremiad, prophesying the end of the world as we know it.

Still, I can understand Rep Goodlatte’s premise: without prodding, the sinecured political class will not reform the tax system. Why would they? The tax code is just one more weapon they can and do wield to augment and retain power.

Barriers to Tax Reform

The New York Times ran an article yesterday titled “The Real Barrier to Tax Reform” written by Bruce Bartlett. I have no issue with Mr. Bartlett, although I rarely read The New York Times. Nonetheless, what caught my eye is the following table of “tax expenditures”:

These “expenditures” make it difficult to raise enough “revenues” to cover whatever the government’s spending binge of the moment is.

I can see how reasonable people may debate the tenth – accelerated depreciation – as an expenditure. Instead look at categories such as the 401(k), medical insurance and employer-provided pension plans.

 A couple of observations on this:

(1)   Since when are monies taken from us as taxes to be called “revenues?”

(2)   Since when are monies we keep to be called “expenditures?”

There is an odor of bad fish with the vocabulary. Apple has revenues, as they have something I want and am willing to pay for. The government - not so much. This damage to the language is itself a barrier to tax reform.

Oh, you may be wondering about “exclusion of net imputed rental income.” Here is the concept: if you rented out your home rather than lived in it, someone would pay you rent. The government would then tax you on your rent. So, by living in your home rather than renting it out, you are costing the government money.

You, dear homeowner-living-in-your-home, are an “expenditure.”

Bruce Bartlett "The Real Barrier to Tax Reform"