Real Reform Would Trim Tax Deductions

Article excerpt

Let's talk real tax reform. Not a tax credit for college tuition. Not cutting the tax on capital gains. That's political pandering. Worse, it's guaranteed to mess up the tax code even more.

You don't believe me? Look what happened last year. Congress passed three minor tax laws that handed out new deductions and credits.

Those little nothings made about 655 changes to the tax code, says tax expert William Gale of the Brookings Institution. True reform wouldn't hand out tax pork. ac Instead, it would simplify the system, lower tax rates and get rid of most itemized deductions d(a form of tax welfare for the monied class). Ironically, Congress tried to do exactly that in 1986. It passed an exemplary tax-reform law that cut the top tax bracket to 28 percent from 50 percent, nearly doubled the personal exemption and increased the standard deduction. To help pay for the cuts, it eliminated some beloved tax gambits, such as the write-off for interest on consumer debt. In 1986, 60 percent of taxpayers used the standard deduction. By the most recent numbers, it's 71 percent. That's simplification in itself. But instead of continuing on that path - lower tax rates, fewer tax breaks, simpler returns - old habits came creeping back. With the special-interest tax cuts that President Bill Clinton just proposed, we've pretty much put an end to the dream of simplification. Several other sweeping approaches to tax reform have been proposed. The most popular is the flat tax - applying a single tax rate to income across the board. But that tax isn't nearly as simple as most people think. Furthermore, the tax rate would have to be set much higher than its backers claim, ito keep the deficit from going up. …


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