Tags: Political | Honesty | Tax | Reform

Political Honesty Necessary for Tax Reform

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Monday, 21 Nov 2011 08:30 AM Current | Bio | Archive

A comment by the director at the Tax Policy Institute, published in Tax Notes last Friday, indicated the difficulties for nervous politicians to be honest about eliminating specific tax benefits.

Without being straightforward about so-called tax benefits in the tax law it is impossible to have tax reform.

The director, who was participating in the annual conference by the National Tax Association suggested that rather than being clear about who specifically will be affected, politicians "could pursue less obvious strategies to reduce the value of those benefits."

As I take it, what our politicians need to do is tell tax payers that the tax law is being reformed when, in fact, allowable deductions are being limited so in reality taxpayers will be paying more tax.

They have a word for this in plain English: fraud.

Lying and deception should be no problem for the Congress or the president since distortion and deceit is an everyday affair in Washington.

You don't think so?

Then why is there a deduction for a taxpayer called a revenue expenditure?

Curiously, there is much praise among the most vocal of the tax reformers for the Tax Reform Act of 1986. The claim being that this was the last successful federal tax reform that adhered to the principles of tax neutrality.

If I remember correctly, the TRA 1986 bought us such great tax reform neutrality as the passive loss rules which created the oxymoron of a "passive activity."

Then there was the incentives for owner occupied housing by increasing the mortgage interest deduction. How about the limitations on deductions for your IRA. Did you like that one?

Or how about the curtailment of depreciation deductions which lead to a crash of the real estate market and the total destruction of the savings and loan industry.

Remember that? How many billions did the government fork up to cover the losses from that tax neutrality?

Remember the RTC where inside the beltway political cronies got the RTC properties for barely pennies on the dollar?

Now the mantras for covering up the latest tax scam proposed by Washington D.C. is horizontal equity, taxpayers paying their fair share, and those with an equal ability to pay taxes pay equal taxes.

How did we get here?

As noted by C. Eugene Steuerle in his recent article for Tax Notes on Tax Reform: Lessons From History, " ...a simple explanation of the tax code's evolution in recent decades is that it broke away from its narrow revenue-raising function and began to evolve much like the spending side of the budget."

Basically, what Congress and whoever was the current president figured out early on was how to manipulate tax deductions and credits to increase spending in ways that are enormously politically beneficial while not having to show that increase in spending as part of any budget.

This then is the critical point in order to correctly discuss tax reform.

Instead of starting the tax reform debate on how to raise more revenue, the beginning point should be, why does the government need more money?

Phony numbers professing to cut the budget by $1.2 trillion over ten years is just another fraud. Washington, D.C., — on a bi-partisan basis — is increasing spending and the debt.

What if Congress and the Administration eliminated roughly some $80 billion lost in refund fraud and other existing hemorrhaging of the tax system; closing up say $200 billion in Medicare and Social Security fraud; and perhaps another $100 billion of fraud in military procurement?

Then the government wouldn't need any new revenue and tax reform would be easy to accomplish without using fraudulent arguments for political ends.

That is, if you can believe that our political leadership could ever be honest about tax reform.

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Kleinfeld
A comment by the director at the Tax Policy Institute, published in Tax Notes last Friday, indicated the difficulties for nervous politicians to be honest about eliminating specific tax benefits. Without being straightforward about so-called tax benefits in the tax law it...
Political,Honesty,Tax,Reform
624
2011-30-21
Monday, 21 Nov 2011 08:30 AM
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