Cracking the Code
Will Congress finally get serious about tax reform?
BY BRENDAN MINITER Wednesday, April 13, 2005 12:01 a.m. EDT
The Wall Street Journal
As millions of Americans scramble to get their tax returns in by April 15, it's becoming exceedingly clear that the million-word tax code isn't working. Putting the question aside of what the government actually needs, what bears asking is: Is this all really necessary?
To most taxpayers the need for a simpler, fairer (and some of us dare say cheaper) tax code seems obvious. But now the issue is getting some serious attention inside Washington. A presidential commission is studying tax reform, and its recommendations are due back by July 31. After Social Security, we are told that this is next on President Bush's reform agenda.
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"Tax reform" is often code for a tax hike, and the best reform would be a simple one, a low flat rate, which isn't likely. But there's reason to hope that we'll end up with something better than what we have now. First, the commission isn't likely to come back with a pie-in-the-sky plan.
The nine-member commission includes two former senators, Republican Connie Mack and Democrat John Breaux, so we can expect that whatever they suggest will be battle tested for the political war ahead. They might even build in a few places for obvious compromise, so to improve the odds their proposal will make it through Congress.
The commission has also already taken a serious look at the code and what has and hasn't worked on the state level as well as internationally. Economist Milton Friedman--who much to his regret helped set up the federal withholding system that pulls money directly out of our paychecks--drove himself to a hearing the commission held in San Francisco recently. One interesting point he made is that big changes are possible even if the bureaucracy is against them. He noted that the IRS originally opposed the federal withholding system, arguing that it would never be able to enforce it.
The bureaucracy, it seems, resists change of any sort, so don't expect the IRS to join the fight for a better tax code. A presidential commission is nice, but this is a political fight that is going to take political muscle to win. That is to say, pressure from voters. To mobilize the voters, however, the president needs a carrot he may have already given up. The tax commission's instructions are to suggest "revenue neutral" ideas--so don't look for another round of tax cuts in the details of whatever the commission comes back with. That leaves the reformers with the promise of a simpler code to mobilize widespread support for tinkering with Congress's social experiment that passes for a tax code.
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That's not a fight that's stacked in the president's favor, except for one other piece of this puzzle. The tax cuts Congress enacted during the president's first term are set to expire in 2010, and the commission is starting with the assumption that those cuts are made permanent. It's almost as if President Bush has been fitting the puzzle pieces together from the beginning of his presidency knowing that one day, this is where he would be. Congress now has to act or in just a few years a massive tax increase--including steep death tax rates and an income tax rate approaching 40%--will fall on the nation.
That brings us back to the question many Americans are asking as they try to make sense of the part of the tax code that applies to them: Is this all really necessary? Thankfully Congress may finally get around to asking that question itself.
Mr. Miniter is assistant editor of OpinionJournal.com. His column appears Tuesdays.
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