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December 7, 2006
Cleanse The Code

I had the opportunity to participate in a conference call with Senators Larry Craig and Ron Wyden regarding the Cleanse The Code project, a tax reform effort to simplify the ungainly regulations that currently exist. I've taken notes of the opening remarks:

Ron Wyden (D-OR):

There have been 15,000 changes in the tax code since the last revision, and now stretches out to 55,000 pages. None of this has made tax compliance any easier; we spend more on tax compliance than education. We either have to keep adding more regulations or "drain the tax swamp". We need a one-page 1040, which the adminstration wants as well. This is a natural opportunity for bipartisanship, and much of the activist model comes from 1986, another bipartisan effort.

The last tax reform took place during the second term of a Republican president working with a Democratic Congress. It can happen again.

Larry Craig (R-ID):

Some differences exist between his tax reform proposal and Wyden's, but they have lots of commonalities. We have to end the 6.4 billion hours of tax compliance that has to be spent every year. It's so complicated that even the IRS can't always determine how the law applies. We need to stop piecemealing it and take reform as a comprehensive project; "we should be sophisticated enough to recognize that."

Other nations have already started moving towards a flat tax to remove the manipulative characteristics of investment. Congress should not be incentivizing and disincentivizing market behaviors through taxation -- that's the job of the market itself. Georgia and Ukraine already realize this, and we need to do so as well.

I had to leave the conference early to consult with the First Mate's doctors. I'm impressed by the effort made by Wyden and Craig, but not necessarily with the direction they appear to be taking. They seem to believe that they can reform the tax system along the same lines as was done in 1986, at least in political terms, and they may be right about the bipartisan desire for simpler tax structures. However, what they propose is simply to reduce the symptoms of the disease rather than cure it altogether.

The only way to stop Congress from manipulating the economy is to strip it from its ability to manufacture the kinds of tax loopholes that benefit special interests in the first place. That would mean either a flat income tax or a transition to a consumption tax, both of which they appear to be avoiding. I asked specifically about the national sales tax proposal that would completely end income taxes at the federal level, and the response seemed a bit vague. The Senator -- I believe it was Senator Craig -- wouldn't rule it out as a solution, but he said that it would infringe on the ability of states to use sales taxes, which seems unlikely to me. Gasoline carries both federal and state taxes, for instance, as do the sale of vehicles. It's simply a matter of bookkeeping and distribution, rather simply done at either the state or federal level.

The flat income tax got further mention, but I heard more about eliminating a specific number of personal and corporate tax breaks to even out the field and to simplify the code. No doubt this would improve the lives of Americans, and it should not get dismissed; that alone would be a pretty impressive victory for tax reform. However, it leaves the same basic structure in place that we have had for the last century, and our experience during that period shows that Congress will abuse it. We'll be back here in 20 years having the same argument we have now, and that we had in 1986.

Cleansing the code is an honorable goal, but the better solution is to eliminate the code altogether and put in place a turnkey system for tax collection that does not overburden the taxpayers, and more importantly shuts the door on political tinkering for individual political gain. Wyden and Craig should focus on the larger prize.

UPDATE: Michael Combs at Strong As An Ox ... has a good post on this subject from November, pointing out the differences between Simplifiers and Complicators:

There are two kinds of people in the world, Simplifiers and Complicaters.

I can hear you Complicaters screaming right now that there are grades of simplification and complication, and each subset must be described and named, and that the differences between each subset are so subtle as to make categorization meaningless, and therefore it is impossible to make any generalizations involving simplicity and complexity.

Bottom line: Keep It Simple, Simplifiers.

Sphere It Digg! View blog reactions
Posted by Ed Morrissey at December 7, 2006 12:35 PM

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» Keep It Simple, Simplifiers from Strong As An Ox And Nearly As Smart
There are two kinds of people in the world, Simplifiers and Complicaters. I can hear you Complicaters screaming right now that there are grades of simplification and complication, and each subset must be described and named, and that the differen ..... [Read More]

Tracked on December 7, 2006 1:05 PM

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I really believe that I have lifetime employment. I just can't see Congress implementing meaningful tax reform in my lifetime (as much as I'd like to see it).

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Tracked on December 7, 2006 10:02 PM

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