Posted 7:41 am Monday, September 22, 2008
Let's Scrap Tax System and Start From Scratch
The complexity of the tax code makes it almost impossible to evaluate the tax policy claims of candidates in this election year.
Both Republican Sen. John McCain and Democratic Sen. Barack Obama say they'll provide tax relief to working-class Americans.
But as Scott A. Hodge, president of the Tax Foundation, points out, millions of such Americans already pay no personal income taxes.
"According to the most recent IRS statistics for 2006, some 45.6 million tax filers -- one-third of all filers -- have no tax liability after taking their credits and deductions," Hodge says. "For good or ill, this is a dramatic 57 percent increase since 2000 in the number of Americans who pay no personal income taxes."
His Washington, D.C.-based group analyzed the respective tax proposals.
"If all of the Obama tax provisions were enacted in 2009, the number of these 'nonpayers' would rise by about 16 million, to 63 million overall," Hodge says. "If all of the McCain tax proposals were enacted in 2009, the number of non-payers would rise by about 15 million, to 62 million overall."
The tax code has always offered breaks to low-income workers.
"Between 1950 and 1990, the percentage of tax filers whose entire tax liability was wiped out by these provisions averaged 21 percent," Hodge notes. "Since then, lawmakers have expanded credits -- such as the earned income tax credit (EITC) -- while creating a plethora of new credits, including the child tax credit, the HOPE credit, lifetime learning credit, and the credit for adoption expenses."
Next year, the Foundation estimates, some 47 million tax returns, representing 96 million individuals, will owe nothing - or will be owed money themselves, due to tax credits such as the EITC and the child tax credit that are "refundable" even if no taxes are paid.
"Both the McCain and Obama plans would increase this number by expanding existing tax benefits or creating new ones," Hodge says. "Sen. McCain is proposing one expanded provision -- the dependent exemption -- and one new credit, a $5,000 refundable health care tax credit. The Obama plan contains seven new provisions, including a new 'Making Work Pay Credit,' a 'Universal Mortgage Credit,' and a plan to eliminate income taxes for seniors earning under $50,000."
The tax code is now being used to pay money out -- the reverse of what it was intended for.
"Over the past two decades, lawmakers have increasingly turned to the tax system rather than direct spending programs to funnel money to targeted groups of Americans, furthering some social or political goal," Hodge says. "As a result, millions of Americans have been effectively removed from the income tax payment system while the tax code has been made more complicated to comply with and more difficult to administer. The tax plans of both the presidential candidates would exacerbate this situation greatly."
Real tax reform would begin by scrapping this complicated, abuse-prone system and starting over.
