WITH THE Johns (Kerry and Edwards, that is) now all but united as the Democratic ticket, the two have formed a meticulously groomed chorus of sorts against the Bush administration's across-the-board tax cuts, advocating a repeal of the cuts for those earning more than $200,000 annually. This has proved popular enough among the Democratic base.
But if the Democratic candidates are truly serious about giving ordinary Americans relief from the burdens of the federal tax structure, they would be well-served to talk about simplifying the tax code rather than railing against those in its top bracket.
The U.S. tax code is perhaps one of the longest, most perplexing documents known to mankind. I was able to find a digital copy of the code online, which I downloaded. All 21 megabytes of it. That's the near equivalent of an entire album on Apple's iTunes store.
The printed version proves even more daunting; if done at 60 lines of text per page, the code would run over 6,000 pages. With a federal tax code of this magnitude, it's no wonder why less than half of Americans do their own taxes.
Even the brave Americans who decide to self-prepare are greeted by a battery of similar-looking-yet-different forms filled with accountant-speak and complex rules. According to the Cato Institute, the number of federal tax forms went from 402 in 1990 to 526 in 2002. That's an increase in excess of 30 percent in a 12-year period. For those keeping score at home, that's Bureaucracy 1, American Taxpayers 0.
Of course, if you're a rich trial lawyer from, say, North Carolina, you can avoid all this hassle by hiring the best accountant you can to plot the best tax strategy for you and your family, as well as fill out those perplexing forms.
Case in point: according to Tuesday's Wall Street Journal lead editorial, John Edwards incorporated his firm in 1995 as a subchapter S corporation, with himself as the sole shareholder of that corporation. In order to reduce his tax burden on the millions he made in personal injury judgments, he paid himself a salary of $360,000 and classified the other $26.6 million as corporate dividends paid to stockholders (himself), thus shielding the overwhelming majority of his income from Medicare taxes and employment taxes, among others.
There is absolutely nothing wrong with any of this. When overbearing and over-complex bureaucracy mounts like it has with the IRS, citizens are justified in fighting back by finding their best competitive advantages to beat the system (legally, of course).
But instead of maintaining a system where only the wealthy, able to hire tax experts, are able to fight back, why not level the playing field for all by cutting out nice sizeable chunks of bureaucracy? There's only one answer for this, but it's not as proven a political strategy as railing on the rich. Steve Forbes, a Republican presidential hopeful in 2000, was laughed out of town when he promoted his "flat tax" proposal, a recommendation which had merits according to some economists and researchers.
Saying that the tax structure should be simplified is far easier than actually doing it. But there are enlightened ideas on how to go about it without resorting to a full-on scrapping of the current structure like Forbes advocated.
The first step in any simplification should be to consolidate the tax policy process. Currently, no less than 12 groups in the legislative, executive and bureaucratic wings of government have a role in the rules that affect the nation's ability to raise funds. Even in an ideal situation where each organization had the same accurate data and assumptions, this would be a mess. In the real world without such benefits, it's a disaster. Slim down the number of cooks in the kitchen, and the broth will instantly start to improve.
Another step in the right direction would be to simplify the rules on income from investments. By capping the amount an individual can put in their 401(k), double-taxing dividends (except, for some reason, for those from municipal bonds), and putting a leash on ambition through the capital gains tax, among other constraints, the federal tax code acts as a disincentive to smart and ambitious investing.
These are just a few ideas among a bevy of solutions. No matter what form reform takes, the goal must be to create a more transparent, logical and citizen-friendly system of revenue collection. What is not a solution, however, is for presidential candidates to placate the voting public with platitudes about having "two Americas," throwing out political red-meat about repealing tax cuts, when they should be talking about how to level the playing field for all Americans, regardless of income bracket.
Jim Prosser is a Cavalier Daily columnist. He can be reached at jprosser@cavalierdaily.com.
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