Reforming the 'Glorious Privilege'
Will, George F., Newsweek
Byline: George F. Will
Why the tax code is like daytime television.
Woodrow Wilson, that incessant moralizer, said paying taxes is a "glorious privilege." Few Americans have ever relished the glory, so until the 20th century the federal government relied heavily on indirect and stealthy consumption taxes--tariffs, which eventually amounted to almost 50 percent of the price of consumer goods. Tariffs were regressive, enriching manufacturers while punishing people of modest means who devoted a high proportion of their incomes to consumption. In The Great Tax Wars (2002), Steven R. Weisman writes that between 1860 and 1890, federal taxation increased sixfold and was paid primarily by the poor.
One American was pleased by the first iteration of the income tax, which was passed during the Civil War: In 1864, Mark Twain paid a tax of $36.82 on his income--plus a late-filing fine of $3.12, which, he said, made him feel "important" because it meant the government was taking notice of him. Republicans repealed the income tax lest its revenues lead to tariff reductions.
In the 1890s, one congressman opposed reviving that tax because it would hit only 2,000 people in his district, and poor people would feel "humiliated and degraded" by those 2,000 being elevated to a higher citizenship. In 1909, four years ahead of the federal government, Virginia enacted an income tax. Weisman writes: "After some tax agents sent to rural areas were never heard from again, Virginia repealed the tax, having collected less than $100,000."
Now, with the Bush tax cuts less than seven months from expiration, the recovery still fragile, and unsustainable deficits looming, Sens. Ron Wyden (D-Ore.) and Judd Gregg (R-N.H.) are striding onto the dark and bloody ground of tax policy, which their proposal would improve. That is faint praise because the tax code is like daytime television--almost anything done to it would improve it. But the Wyden-Gregg proposal deserves robust praise.
Their approach is orthodox--pay for lower rates by broadening the base, and do that by eliminating most of the almost 10,000 complexities (deductions, credits, and other preferences) that distort the economic decisions of individuals and businesses. Individuals and couples with incomes up to $200,000 would do better, or no worse, under Wyden-Gregg than under current law. Wyden-Gregg would reduce the number of income-tax brackets to three--15, 25, and 35 percent--and would cut the corporate tax rate, currently the second highest in the industrial world (it is lower than Japan's), to 24 percent. …