When I was a very young pup getting started in this business long ago, I was able to save a little bit of money from my job and purchase cable television, which was then a novelty. When the cable service was installed, I quickly became fascinated with the “C-Span” network, as I found it interesting as to see how tax laws were actually made.
One night, I stumbled into a debate on C-Span where Bill Bradley (then a Democratic senator from New Jersey, Princeton graduate and former player on my favorite pro-basketball team) proposed a very simple flat-tax system. Mr. Bradley explained that the existing system was ripe with over-complication and loopholes, encouraged cheating, and was far too complicated for Americans to deal with. With that comment, he took out a 3” by 5” index card, while a corresponding graphic floated on the screen.
Sen. Bradley then explained that this little card would now be our simple, new, tax form, as I followed the graphic on the screen. This was so simple that a grade school student could complete it in a matter of moments! One block for your total income, of whatever source. One block for a standard deduction, a varying amount depending if you were married or single. Another block for exemptions for your family members and dependents, and you arrived at your “taxable income.” Depending on the result; you were to multiply that amount by one of two rates in order to arrive at your Federal tax. Voila! DONE!
I became entirely immersed in these proceedings. Not only was this man throwing me out of a job, but I began to feel that what I had chosen for my profession really had no meaningful social significance whatsoever. As I watched the senator’s presentation, I honestly did not know whether to laugh, cry, scream, or fall into a state of shock. In my case, shock dashed with a wee bit of betrayal was the predominant emotion.
However, as the Senator concluded, a number of his colleagues began to comment and ask questions:
“Sen. Bradley, I think we have to allow the deduction for mortgage interest and property taxes, otherwise, the construction and banking industries will collapse.”
“Sen. Bradley, I am concerned that people will not give to charity without a corresponding tax offset.”
“Sen. Bradley, if we do not provide a favored rate for capital assets, none of those assets will get sold. The securities markets will fall flat!”
“Sen. Bradley, if there is not a carve out for retirement savings, no one will bother to save!”
Now Bradley, wanting to appear as an open-minded and intelligent guy, tried very hard to accommodate each comment. He made statements like “OK…we can provide for that deduction by adding another line, block, schedule, attachment, rider….” He was making markups to his card that began to resemble the grid of the failed Robert Moses New York City highway system. By the time the session ended, what was present on the screen resembled something very close to the tax return form that I was now struggling to learn at work. So really, I wondered what the reason was for all of that debate stuff was for. Truly the whole discussion about changing the tax system was entirely circular.
The next morning, I wanted to show my professional dedication to the senior tax partner of my firm by telling him how I spent the previous evening. He looked at me, shook his head, and laughed loudly. “This law-change stuff is the making of sausage, kid. None of it sticks around past the dessert course!”
As of the time of this writing, over thirty years later, these impressions remain dead-on correct. We still do not have a simple, fair, or flat system of taxation in the United States, despite many outcries to that effect. But, could we? Is it possible? I really do not think so. For unfortunately the problem is largely a problem of our own making.
If we were to take ten Americans of varying social and economic status and have them describe what the ideal income tax system is, each one would agree on the concept of “simplicity”, but each one would as well want to see their burdens offloaded on others. The rich man would want a lower rate and incentives. The lower-income lady would want the rich guy to pay more. The nice young married couple down the street would absolutely flip out if we took away their housing and charitable deductions. The well-to-do single woman with no children would protest at the loss of a charitable deduction. And, if we add in representatives from the financial, lobbying, and non-profit industries, we could all be there debating, for many years, with lofty dissertations of social goals and revenue targets.
I have said for years that the tax rules we have, are the rules that we deserve. But needless to say, reform has all been tried before and, it’s going to be tried again. Make it simple, make it fair. Eliminate the bells and the whistles. Eliminate the burdens. Sure! Sounds great! But when does it happen?
No one really knows when, or if, it will ever happen. But until such time, we’ll be here to help you cope and deal with whatever set of ground rules is presently before us, up to, (and including) the time of the next changes.
Tony De Angelo