A story earlier this week about a proposed tax deduction for pet expenses got me thinking about tax reform. Every election cycle politicians of all stripes talk about simplifying the tax code or reforming the process, and yet the last time any serious effort was undertaken by Congress on this issue was over two decades ago — and it fell far short of success in the long term. We spend over $250 billion a year in tax preparation and possibly more than twice that on tax compliance, according to the GAO. Why does nothing change?
In my new AIP column, I explain why Congress doesn’t want to part with its Byzantine weapon, and why taxpayers love the idea of tax reform just up to the moment that it impacts their own deductions:
Too many people have stakes in the existing deductions. Homeowners will shriek if the mortgage interest deduction disappears, and parents will burn the phone lines if Congress eliminates their deductions for their offspring. The more deductions that get offered, the more stakeholders they create in the status quo. And let’s not forget that tax preparation industry, which would stand to lose hundreds of billions in a simplified system.
However, if those stakeholders were the only problem, Congress could probably sell an overhaul. As much as those deductions mean to taxpayers, a simplified system would mean more – in efficiency, in economic growth, and most importantly in individual liberty. An IRS in such a system would work as a simple collection agency, not an invasive, pervasive presence in our lives, giving the government access to information it should have no business accessing. Taxpayers would certainly want that.
Unfortunately, as the HAPPY Act and the other deductions show, Congress is the biggest obstacle to real reform. The existing tax code perfectly suits their purposes. It gives them the power to tinker with the choices made by Americans, from pet ownership to home ownership, and from procreation to fishing tackle. It also gives Congress an inordinate amount of power to pick winners and losers in the marketplace through tax incentives and penalties. In short, the existing tax code gives Congress far too much power for a legislature in a free society.
Be sure to read it all. If a political party wants to get serious about liberty and less intrusive government, then overhauling the tax code should be one of its highest priorities. In fact, given how most people are satisfied with their health care and Americans overwhelmingly hate the tax system, a tax-system overhaul should have been far ahead of a health-care system overhaul on the political agenda — and the tax system is entirely a government activity, unlike ObamaCare’s intrusion into the private sector.
While you’re at AIP, don’t miss the other columnists and bloggers there. Matt Margolis wonders whether President Obama has turned Afghanistan into a quagmire. Lorie Byrd notes that the phrase “budget cuts” has a strange definition these days. John Hanlon discusses the difference between Rep. Joe Wilson and Rep. Alan Grayson.