Today’s April 17, Tax Day 2012. Thanks to the quirk of the year, with April 15 falling on a Sunday and April 16 being Emacipation Day in Washington, Americans had an extra two days to file their 1040s.
We Republicans spend a lot of time talking about taxes. It’s one of the fundamental issues that drives our party and has been for decades, if not longer. Our party prides itself on pushing for low taxes, so that Americans can keep more of what they earn and government spends only on core functions – those specifically outlined in the Constitution or those which flow rationally from enumerated powers. So for us, today is a day that we find to be an evil, albeit a necessary one.
Democrats view taxes differently. For them, taxes are the lifeblood of government. Without taxes, government cannot do all the good it was designed to do, like protecting the poor, elderly, and those who cannot protect themselves. When people don’t pay their fair share of taxes, government services suffer, and in turn the people who count on government to protect them suffer as well.
This is probably the greatest single cleaving line between the two parties, and it shows. Election years inevitably turn on at least one side making taxes a key part of their platform and it is always an election issue. More often than not, the side that has raised taxes or has made it clear they were willing to has ended up on the losing side, and it’s happened to Republicans and Democrats. Boiled down to its most general, history says Mondale lost in 1984 because he admitted he would raise taxes if elected, and George H.W. Bush lost in 1992 by raising taxes after pledging “no new taxes” under his Administration. It’s a thorny issue.
But one thing is clear right now – government is spending far more than it is taking in. And while Republicans are loath to admit it, something else is clear too – Americans overall pay far less in federal income taxes today than they have at any time since World War II.
The simple solution would be to raise federal income taxes to meet the difference in spending vs. revenue, but that’s too simple a solution – mainly because it ignores the true breadth of the problem. The problem is instead of paying federal income tax alone, Americans are taxed in almost every aspect of their lives. From waking up in the morning to going to bed at night, from the cradle to the grave, nearly everything is taxed in some way. So even though federal income taxes are lower than they’ve ever been, the burden on the American taxpayer seems to be just as high as it has ever been. That’s why Republicans have been focused on how the money is spent, rather than how much is collected. The only entity in the world that can decide how much it wants to spend before it knows how much it has to spend is the federal government. We need to end that practice, as most families, state and local governments don’t have the same luxury.
When it comes to “other” taxes – other than federal income tax – one area where we lag behind the rest of the world is in corporate income taxes. Our overall corporate income tax rate is the highest in the Western world, thanks to Japan dropping their rate as of April 1, 2012, with a combined rate of 39.2%. Federal corporate income taxes represent about 9% of the federal budget. This puts us at a competitive disadvantage to the rest of the world who, whether we like it or not, are our competitors today.
Moving away from questions of rates and who pays, the complexity of the tax code is a major problem. The tax code is a monstrosity, taking up yards of space in every law library. It makes Obamacare look like the Reader’s Digest. Its complexity is such that many tax attorneys return to law school for the equivalent of a master’s degree in tax policy – and even then, they still get hung up on the details. An intricate web of rates and deductions, exemptions and holidays, with the interaction of local, state and federal taxes crisscrossing, it is a mind-numbingly complex system that has spawned complete industries, from tax preparation and legal representation, to those who will argue with the IRS for you if you get the tax wrong.
If anything is clear when it comes to taxes, it’s this: the system isn’t working well. Many think they’re overtaxed despite paying less now than ever before. A recent poll says over two-thirds of Americans think the tax code is designed to benefit the rich. Too often Congress, state and local governments have used the tax code to incentivize or deter behavior, whether it’s taxing liquor and guns, to providing tax credits to people who buy hybrid cars, to the venerable mortgage interest deduction. The tax code has long since ceased to be the method by which government funds itself and has become just another way for government to regulate the citizenry.
Tax reform is critical. The system needs to be simpler. It needs to be fairer, not just in who pays and how much, but in how it is collected, and what the money collected is being spent on – it is just as unfair to ask a rich person to send in a check that will be spent on dinners and “jackass awards” as it is to ask a poor person to do so. We need a national conversation on taxes at all levels, and inevitably that conversation will touch on every aspect of American life. Entitlements, social spending, education, defense – anywhere government spends money is impacted by how much we take in and how much is spent back out. And in an economic environment where the slightest shift one way or the other can have a ripple effect far greater than what is often anticipated, we need to be careful and thoughtful in how we approach reform.
We must fix the tax code, no matter how difficult it is. There is really no more difficult task in American political life. And, like most difficult tasks, it’s one we simply cannot afford to postpone any longer.
