Tax Cuts and Simplification
What can be done to fix a frustrating system?

It is always liberating when April 15th, the IRS tax filing deadline, has mercifully come and gone and the return is in the mail. The infamous date marks the apex of exhaustive efforts to comply with a federal tax code truly understood by no one.

After weeks of stress, uncertainty, pressure, and trauma associated with income tax filing, U.S. taxpayers can take a brief respite before beginning to attack next year’s tax maze.

The tax code should be simple enough for Americans to calculate their own income tax responsibilities. There is something grotesquely wrong when taxpayers with advanced academic degrees can’t deal with a code that is vague and many hundreds of pages long.

Vast legions of Americans are compelled to hire tax professionals to prepare their IRS returns, and even the experts fall short. A well-known national tax preparation service was recently red-faced to admit mistakes on its own business tax return to the tune of many millions of dollars. Despite occasional Congressional efforts to simplify the U.S. tax code, it remains longer than the Bible and continues to grow more complex with each “reform.”

Taxes are what we pay for a civilized society, but what is objectionable is needless complexity, confiscatory rates, unfairness or official waste of tax revenue. History shows that whenever new public needs or problems arise, the usual first recourse is an attempt to create a new tax, rather than prioritizing needs and re-allocating existing revenues. For example: the recent insouciant call by obesity researchers to increase taxes on soda drinks to combat obesity, completely ignoring poor diet and lack of exercise as contributing factors.

Conversely, each time a budget surplus occurs, elected officials stampede to spend it all for special voter groups or interests. No wonder so many taxpayers don’t trust government to have more money.

Each time the capital gains tax has been reduced over the past 45 years (JFK, Reagan and G.W. Bush), the Congressional Budget Office has wrongly projected diminished federal revenues. The exact opposite has happened: A dramatic increase in revenues has occurred. The American Shareholders Association reported that actual revenues from Bush’s lower capital gains tax rate came in $62 billion higher over the last three calendar years than Congressional estimates.

While some analysts say President Bush won’t get much done during his second term, little by little, his domestic agenda is moving through Congress. Cutting taxes continues to be his pivotal domestic issue. First-term tax cuts fueled the present job creation, strong profits, excellent productivity trends, rising wages (average weekly earnings are up 3.6 percent, according to the Bureau of Labor Statistics), and an all-around growing economy – all despite the glitches caused by Hurricane Katrina.

The administration is pressing hard for continued capital gains and dividend tax cuts. After all, more than half of all workers in America own stocks, and millions of them are middle- to lower-income earners. These cuts are needed to fuel investment and enrich worker retirement portfolios, which presently stand at $13-plus trillion.

Too many dollars shifted from production to government consumption negatively impacts capital formation. That’s why tax cuts in the death tax, capital gains, dividend and corporate profit taxes need to be continued.

Pat Freibert is a former Kentucky state representative from Lexington.
editorial@lanereport.com

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