STATE OF THE UNION: NOT SO GOOD – Post No. 013108-4

State of Dis-union

 By Columnist, William F. Buckley

President Bush didn’t give Congress, in his State of the Union address, quite what was expected, especially in the area of taxation. Several high critics of Bush, most of them running for president, spoke vociferously about the need to cut the privileges that flow to the rich through the tax laws. One critic said that the time had finally come when the tax burden should move against the wealthy.

President Bush gave them little satisfaction, in part because there is little satisfaction to be had.

Many listeners were reminded of what they had already numbly discovered for themselves, namely that the tax laws are ambiguous, not to say inscrutable. The layman has no alternative than to read proposed laws impressionistically, particularly if he is interested in the political implications. (“It favors the rich!” “It takes no realistic notice of the need to retool.”)

As to practicalities, an enterprising researcher many years ago tried phoning six different IRS offices to ask how to handle a particular line on the income-tax return. He received six different answers. If professionals cannot come to the same conclusion as to what the code says, it is not surprising that calls for tax reforms have attracted adherents, reaching back to 1972 and the days of George McGovern, who made reforms a staple of his program; and carried forward ingeniously on the conservative side of the aisle by such as Phil Gramm, Dick Armey and Steve Forbes, with various proposals for a flat income tax or a consumption tax.

The top marginal tax rate aside, there is the sheer complexity of it for those millions who must file federal income-tax returns. Many of them choose, prayerfully, tearfully, to fill out the short form. Others take the choice of hunting for all available exemptions, deductions and depreciations, and then suffering the torment of wondering whether they took full advantage of every possibility. The exhausted, and the semi-exhausted, are asking the question: Why should it be so complicated?

The reason why tax reform is so complicated is that reformers seek out jungle leaves writhing for the sunlight, toward such rays of justice and equity as are discernible at any given moment in American politics — the moment when the action freezes, as for a photographer, for just long enough to permit one set of claimants to overshadow another. Thus a tax reform is born, and for that brief moment we have a new law that is taken as expressive of social policy. It is an assertion of justice understood as a blend of considerations: the necessities of the state, the toleration of the body politic, the relationships of power among the affected interests.

Some critics fault President Bush for not pushing harder to raise corporate taxes. At present, corporate taxes account for between 7 percent and 11 percent of all the revenues taken in by the federal government. This is down drastically from the 1950s, when corporate taxes brought in 30 percent of federal revenues. It is, however, not the tax one wants immediately to contemplate raising when we are running the largest trade deficits in history.

Bush attacked directly the so-called earmarks, and he did so persuasively. But earmarks, while the least defensible federal spending, do not account for a large proportion of the federal budget.

George W. Bush tried — flirted with — doing something about Social Security. Ronald Reagan tried –flirted with — doing something about Social Security. But real reform ran up against political walls, and so the underlying problem remains, getting worse every year. President Bush is framed by these realities — with 1 1/2 wars going on. Some of us dare to say that his sheer decency shines through even the tangle he has to account for, and for which he bears a substantial share of responsibility.

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1 comment
  1. The problems with Forbes’s “flat” tax have been adequately refuted by Dan Mastromarco (snipr.com/mastroflatvsfair – should take you to “comments”).

    Gov. Huckabee’s advocacy of the FairTax ( snipr.com/irsgone ) is the single most important policy position in this election. Research findings explain why:

    The FairTax rate of 23 percent on a total taxable consumption base of $11.244 trillion will generate $2.586 trillion dollars – $358 billion more than the taxes it replaces [BHKPT] ( snipurl.com/whatratewks ).

    The FairTax has the broadest base and the lowest rate of any single-rate tax reform plan [THBP] ( snipurl.com/baserate ).

    Real wages are 10.3 percent, 9.5 percent, and 9.2 percent higher in years 1, 10, and 25, respectively than would otherwise be the case [THBNP] ( snipurl.com/realwages ).

    The economy as measured by GDP is 2.4 percent higher in the first year and 11.3 percent higher by the 10th year than it would otherwise be [ALM] ( snipurl.com/econbenes ).

    Consumption benefits [ALM] ( snipurl.com/econbenes ) :

    • Disposable personal income is higher than if the current tax system remains in place: 1.7 percent in year 1, 8.7 percent in year 5, and 11.8 percent in year 10.

    • Consumption increases by 2.4 percent more in the first year, which grows to 11.7 percent more by the tenth year than it would be if the current system were to remain in place.

    • The increase in consumption is fueled by the 1.7 percent increase in disposable (after-tax) personal income that accompanies the rise in incomes from capital and labor once the FairTax is enacted.

    • By the 10th year, consumption increases by 11.7 percent over what it would be if the current tax system remained in place, and disposable income is up by 11.8 percent.

    Over time, the FairTax benefits all income groups. Of 42 household types (classified by income, marital status, age), all have lower average remaining lifetime tax rates under the FairTax than they would experience under the current tax system [KR] ( snipurl.com/kotcomparetaxrates ).

    Implementing the FairTax at a 23 percent rate gives the poorest members of the generation born in 1990 a 13.5 percent improvement in economic well-being; their middle class and rich contemporaries experience a 5 percent and 2 percent improvement, respectively [JK] ( snipurl.com/kotftmacromicro ).

    Based on standard measures of tax burden, the FairTax is more progressive than the individual income tax, payroll tax, and the corporate income tax [THBPN] ( snipurl.com/lessregress ).

    Charitable giving increases by $2.1 billion (about 1 percent) in the first year over what it would be if the current system remained in place, by 2.4 percent in year 10, and by 5 percent in year 20 [THPDB] ( snipurl.com/moregiving ).

    On average, states could cut their sales tax rates by more than half, or 3.2 percentage points from 5.4 to 2.2 percent, if they conformed their state sales tax bases to the FairTax base [TBJ] ( snipurl.com/staterates ).

    The FairTax provides the equivalent of a supercharged mortgage interest deduction, reducing the true cost of buying a home by 19 percent [WM] ( snipurl.com/homebenes ).

    ALERT: Kotlikoff refutes Bruce Bartlett’s shabby critiques of the FairTax ( snipr.com/bbrebuke ).

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