Tax Code Itself Biggest Obstacle to Its Reform

For 40 years I have maintained that excess governmental complexity makes it impossible for us to vote intelligently in our own interests. My 1981 college textbook discussed taxes as a prime example. Chapter 14, "Complexity Versus Constitutionalism," noted that, "It is apparent that . . . although the electorate has the legal right to boot the rascals out on the basis of their decisions regarding taxes, voters are in no position to exercise that right methodically in their own interests.

"Public discourse on taxes is uniformly unsophisticated and demagogic. As long as the present degree of complexity is preserved, there is very little that anybody will be able to do about this."

Regrettably, every word in this 1981 analysis is still true. If anything, existing tax law is even worse. And now we face a tremendously complicated 400 page "reform" proposal, knocked together in back rooms and which Republican leaders hope to enact in less than two months.

The only thing worse than one horribly complicated tax code is two such tax codes which we need to compare to determine whether existing law should be replaced by the new proposal. When I sat down to make a systematic comparison, it soon became obvious that it is an impossible task.

What, for example, is the net effect of doubling the standard deduction but eliminating personal exemptions (currently $4050 per person), adding a "family flexibility" tax credit, eliminating the right to deduct state taxes and medical expenses for those choosing to itemize, and limiting deductibility of property taxes?

I once studied enough accounting to become eligible to take the CPA tests (though I never did it), and my wife is a retired CPA. We can't even make an educated guess about the net effects of these and many other proposed changes.

I venture to say that members of the U.S. House and U.S. Senate will be equally unable to compare the current and proposed tax codes in any systematic way. And they are being asked to enact this major legislation hastily, with hardly any formal scrutiny, without even the public feedback and discussion the Administrative Procedure Act (enacted June 11, 1946) requires even for minor changes in administrative rules.

Given the complexity of the proposed "reforms" and the lack of due process of legislation by which our current leaders propose to enact them, Americans should give these proposals our undivided suspicion. When proposed legislation is extremely complicated, it is too easy to sneak in little and not so little favors for interests which may be good for lavish campaign contributions. Complexity makes it too easy for these favors to get lost in the shuffle.

One not so little favor: the proposal fails to eliminate the notorious "carried interest" loophole which allows hedge fund managers to pay low capital gains tax rates on their compensation for managing the funds.

This means that executives, some of whom make more than a billion dollars annually, will continue to pay a smaller percentage of their incomes in taxes than do the custodians who clean their offices. And these managers have little capital of their own at risk, since they are mostly managing other people's money. Legislative complexity here will distract attention from this public policy obscenity.

In politics people often invoke principles in a highly unprincipled way. It is fascinating how many Republican politicians , long opposed on principle to running up the national debt, now say that increasing that debt an additional trillion and a half dollars during the next ten years is no problem.

A trillion and a half is probably a wildly optimistic prediction, made possible only by exaggerated "dynamic scoring" claims that tax cuts will stimulate so much economic activity that future tax collections will be greatly increased. If Republican leaders really believe this, their legislation should provide that if future tax collections fall short of their predictions, tax rates will automatically claw themselves back up enough to make up the difference.

There is a bottom line here: If Americans want to regain effective control over government, we must insist on radical simplification in our laws, especially tax laws. As James Madison wrote on Feb. 27, 1788, in Federalist Paper (No. 62), "It will be of little avail to the people that the laws are made by people of their own choice, if the laws be so voluminous that they cannot be read, or so incoherent that they cannot be understood; if they be repealed or revised before they are promulgated, or undergo such incessant changes that no man, who knows what the law is today, can guess what it will be tomorrow."

Paul F. deLespinasse is Professor Emeritus of Political Science and Computer Science at Adrian College. He received his Ph.D. from Johns Hopkins University in 1966, and has been a National Merit Scholar, an NDEA Fellow, a Woodrow Wilson Fellow, and a Fellow in Law and Political Science at the Harvard Law School. His college textbook, "Thinking About Politics: American Government in Associational Perspective," was published 1981 and his most recent book is "The Case of the Racist Choir Conductor: Struggling With America's Original Sin." His columns have appeared in newspapers in Michigan, Oregon, and a number of other states. To read more of his reports — Click Here Now.