AMERICAN taxpayers could get the equivalent of a big tax cut next year, without costing the United States Treasury a penny. This isn't a joke. Read on. The Internal Revenue Service says that Americans spend about nine hours completing the 1040 tax form, not counting other forms. Actually, it can take that long just tracking down old receipts. But quibbles aside, the federal income tax is a massive nuisance that turns us into bookkeepers for the federal government.
The problem isn't just how much we pay; it's also how we have to pay. And how much we pay to pay. We spend sometimes hundreds of dollars on TaxMan or H&R Block to fulfill a simple civic duty. Then we pay $12 billion more as taxpayers so that the IRS can oversee this mess. The IRS now puts out 392 separate forms. Its regulations occupy close to two feet of shelf space. Every year some newspaper calls different IRS offices with a tax problem and gleefully reports the conflicting advice. Don't blame the IRS. Most members of Congress couldn't explain the law either, and they write it.
Most likely I'm preaching to the choir. If you have done your taxes you probably are seething already at the complexity of it all. Taxpayers unite, and demand a simpler system! But then someone gets down to specifics. The mortgage-interest deduction, for example. Do you really want to lose the mortgage-interest deduction?
Hmmmmm. Better leave well enough alone.
That's exactly what the Washington establishment wants you to think. The tax code is a kind of political con game designed to make you feel grateful for a rotten system. First they set the tax rates relatively high. (Even after the Reagan cuts, 28 cents out of every dollar is a lot.) Having tied you to the railroad tracks, they then come to the rescue with their credits and deductions. How thoughtful of our friends in Congress.
Big campaign contributors feel especially grateful. So most members of Congress covet seats on the tax-writing committees. It's not because they are enthralled with such niceties as the capital loss carry-over. It's because they like the contributions such niceties can bring in.
With a truly simple system, Congress would be a loophole store with nothing on the shelf. Ditto trade associations. These need legislative feats for their newsletters just like Congressmen do, to justify their high salaries. A simple tax system would deprive Congressmen of a major membership-retention device: tax loopholes.
But what about our tax breaks, such as the mortgage-interest deduction? Doesn't complexity work for us too?
No it doesn't. I like my mortgage-interest deduction as much as anyone. But I have to tell you: It's a big fraud. I discovered this the first time I was shopping for a house. The real estate agent showed me one that cost more than I thought I could afford. ``Don't worry about it,'' she said. ``The interest is deductible.''
That's the dirty little secret of the mortgage-interest deduction. It doesn't make housing much cheaper. Instead, it lets sellers charge more for their houses and bankers higher interest rates for their money. This is why the real estate lobby becomes hysterical every time the deduction is questioned. Higher home prices mean higher commissions.
Other deductions work much the same way. Why do you think expense-account restaurants are the most expensive? Why not? It's deductible.
That's all fine in theory, you say. But what of the practical problems - the people who already paid inflated home prices, for example, relying on the interest deduction. Besides, the Washington lobby groups aren't about to let the larger idea of simple taxes get very far.
So let's finesse them. Pass a radically simpler tax system and make it voluntary. People who are fed up with the clutter of receipts could opt for a tax form with just three lines. First, their income. Second, a very low rate - perhaps 5 to 10 percent or so - that could increase slightly with income. Third, the tax due. No deductions, no credits, nothing (except perhaps an exemption for kids and dependents).
April 15th would be a breeze. And the tax cut? The money we now spend on tax preparers and accountants, we'd be able to keep ourselves.