TAX REFORM IS COMPLEX
September 16, 2004
The idea that it is possible to simplify the tax system so that most returns could be filed on a postcard is one of those enduring myths of American politics. Even the much touted 1986 tax simplification law wound up complicating the system, notes Bruce Bartlett, senior fellow with the National Center for Policy Analysis.
Since then, Bartlett says, it has gotten even more complex with the addition of tax credits, deductions and other goodies for specific groups.
Basically, tax reformers have proposed three main alternatives:
- A flat tax, under which all or most deductions would be eliminated and all taxpayers would pay the same rate. Former House Majority Leader Dick Armey proposed a 17 percent rate years ago, but critics say the rate would have to be at least 20 percent -- which is higher than 80 percent of households currently pay in federal taxes, according to the Congressional Budget Office.
- A national retail sales tax, which would replace the current income tax system and eliminate the Internal Revenue Service. William Gale, an economist at the nonpartisan Brookings Institution, says it would take a 26 percent sales tax to replace the income tax and a 38 percent one to replace all federal taxes, assuming no revenue losses.
- A value-added tax, similar to those levied in many European countries; it would be added each time a product is sold or resold as it passes from manufacturer to wholesaler to retailer.
Bartlett thinks a value-added tax might have the best prospects -- if not to replace the current system, then to raise additional revenue to cut the deficit. It would maintain Bush's tax cuts, raise a lot of revenue and create a mechanism that could be used for future increases.
Source: Carl P. Leubsdorf, "Simpler tax code? Dream on," Dallas Morning News, September 16, 2004.
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