Sen. Ron Wyden, the Oregon Democrat, has not received the memo explaining that Congress can accomplish nothing in an election year or the year before one. He calls himself the Senate's designated driver, the one not running for president, so he has time to try legislating. He also is the Senate's Sisyphus, determined to roll the boulder of tax reform up Capitol Hill yet again.
The fact that Wyden's proposal, the Fair Flat Tax Act, seems radical is a measure of how foolishness has become conventional. Today, as when tax reform was accomplished in 1986, the objectives are threefold—although Wyden stresses only two.
One is simplification for its own sake. Americans spend an estimated 6.4 billion hours (more than the 6.3 million industrious people of Indiana work in a year) and more than $265 billion on compliance with a tax code that is six times longer than "War and Peace" (not counting 8 million words—20,000 pages—of regulations). And even with professional help, Americans cannot be confident that they have not broken the law concerning this basic civic duty.
Reform's second objective is to promote economic efficiency by broadening the base. That means eliminating deductions, exemptions, credits and other legislatively conferred favors in order to pay for revenue forgone by lowering rates. In 1986, Ronald Reagan, collaborating with Sen. Bill Bradley and other Democrats, did this. Alas, as Will Rogers said, both death and taxes are certain, but the difference is that death does not get worse every time Congress meets.
Since the 1986 simplification, Congress, a recidivist complicator, has added more than 14,000 new wrinkles to the tax code, about three for every working day. Some changes were made to confer favors on particular interests, some to encourage Americans to behave as Congress and presidents have thought they should—buying certain kinds of windows for their homes, driving hybrid cars and so on, and on, and on.
George W. Bush received an animal roar of approval when he told the 2004 Republican convention he would "simplify" the tax code's "complicated mess." He also promised measures to encourage less dependence on foreign energy and more access to college, health insurance, affordable homes and other delights—all measures involving tax exemptions, credits and other behavior-modification incentives.
As Michael J. Graetz of the Yale Law School has written, the political class "uses the income tax the way my mother employed chicken soup: as a magic elixir to solve all the nation's economic and social difficulties." Americans, gripped by cognitive dissonance, want tax simplification—and all the current complexities that benefit them.
Under Wyden's plan, all Americans—and all corporations—would use a one-page form. There would be three rates (15, 25 and 35 percent) instead of today's six (10, 15, 25, 28, 33 and 35) for individuals, and a single rate for corporations. The alternative minimum tax, which this year will ensnare 23 million taxpayers, would be abolished. The standard deductions (currently $5,000 for single filers, $10,000 for married couples) would be tripled. No fool he, Wyden flinches from severe flatness that would end the most popular deductions, for mortgage interest and charitable contributions.
The time is ripe for reform, for two reasons. The 2001 tax cuts will expire in 2011, so Congress cannot avoid re-examining the existing tax code, which nobody, given a blank slate, would re-create. And Democrats, who control Congress, are suffering stinging disapproval for underachieving.
Liberalism's favorite four-letter F word—"fair"—always bedevils tax reform. Liberals want to redistribute wealth, the creation of which they impede. Although Wyden is basically a business-friendly liberal, he has a concept of fairness that arguably tilts toward egalitarian outcomes more than is conducive to economic growth and hence to happiness and equity. But if conservatives and liberals could agree on flatter, simpler taxing, various distributive outcomes could be negotiated.
Conservatives like tax cuts as means for restraining—or so they think—government spending ("starving the beast"). Liberals like tax benefits as ways to spend without seeming to. Therefore tax simplification serves a third objective, one that Wyden is perhaps too polite to stress—reform of Washington's political culture.
Simplification would confiscate the intellectual capital of K Street, the habitat of Washington lobbyists, who toil to put complexities into the tax code for the benefit of clients. At the end of World War II the income tax was considered the nation's fairest tax, but now is considered the least fair. K Street helped cause that change.
Still, K Street, and the political culture that sustains it, are durable facts. That is why, in the unlikely event that anything like the Wyden plan is adopted, 20 years and 14,000 complications later some other Senate Sisyphus will have to put a shoulder to the boulder.