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Posted at 9:00 AM ET, 12/27/2010

Why we're not likely to get tax reform

By Ezra Klein

CCH-Federal-Tax-Law-Pages.PNGThere's no issue that lends itself to as many applause lines as tax reform. At about 70,000 pages, the tax code is both intrinsically absurd and widely disliked. Rep. Dave Camp, the incoming chairman of the House Ways and Means Committee, has a particularly good one: "The tax code is 10 times longer than the Bible," he says, and "without the good news."

The White House has also talked up its interest in tax reform, and Sen. Max Baucus, who controls the relevant Senate Committee, has started holding hearings on the subject. With Republicans and Democrats on board, and the relevant players in the House, Senate, and White House interested, this should be easy, right?

I doubt it. If you could agree on what the words "revenue neutral" meant, you really could redesign the tax code to feature lower rates, simpler forms and less economic drag. But given the coming expiration of the Bush tax cuts, you can't agree on what revenue-neutral means, as Democrats will say it means revenue after the cuts expire, and Republicans will say it means revenue if the cuts were extended. Until that question is resolved, every tax reform conversation will break down when Republicans realize Democrats are trying to lock in the expiration of the Bush tax cuts and Democrats realize Republicans will only reform the tax code if it means the Bush cuts live forever and ever, amen.

But the bigger problem is that no one's first love is tax simplification. Politicians don't want to modernize the tax code so much as they want to change the tax code in ways that fit their long-term goals.

Conservatives want lower taxes, particularly on the rich. They want a larger percentage of Americans to pay federal income taxes, as they believe that paying federal income taxes makes you less likely to support federal spending (Question: Is there any evidence for this view?). They want major cuts in existing government programs and a high bar to creating new programs, which means total revenues have to remain below current spending and far below projected spending.

Liberals have their own concerns: They want more revenues, as they know that their programs can't survive forever unless taxes rise to meet spending. They want the tax code to be more progressive, and they want to see inequality fall. They want taxes on wealth-income brought into line with taxes on work-income. They want the social spending that runs through the tax code, like the Earned Income Tax Credit or the breaks for clean energy development, to survive, and even be expanded.

And then there are the parts of the tax code that scare politicians: The mortgage-interest tax deduction, the exclusion for employer-based health insurance, the hundreds of smaller tax breaks that the public doesn't know about but that this or that business group will fight to the death to retain.

So I don't take idle talk about "lowering rates and broadening the base" too seriously. When I hear politicians start to lay out answers to some of these questions, I'll become optimistic about tax reform. But so long as I hear them pushing other agendas under the cover of tax reform, I'll hold my enthusiasm.

Graphic credit: CCH Federal Tax Reporter.

By Ezra Klein  | December 27, 2010; 9:00 AM ET
Categories:  Taxes  
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Comments

"They want more revenues, as they know that their programs can't survive forever unless taxes rise to meet spending."

Aren't you one of those people who have endorsed Bruce Bartlett's absurd argument that the "starve the best" theory is wrong?

Posted by: ostap666 | December 27, 2010 9:40 AM | Report abuse

Welcome to the adult world Ezra. It took a little longer than I thought, but congratulations on making it!

Posted by: 54465446 | December 27, 2010 10:09 AM | Report abuse

"they know that their programs can't survive forever unless taxes rise to meet spending."

More to the point, with federal revenues currently at about 60% of spending, the deficit will NEVER be addressed unless taxes rise significantly.

Trouble is, despite all the sound and fury, the deficit is no one's primary issue when they enter the voting booth, and the politicians know this.

Posted by: suehall | December 27, 2010 10:55 AM | Report abuse

Ezra's prediction that reform won't happen may be soon tested.

Lo and behold, the planets are aligning. We have conservative Dems in control of the Senate and the GOP is in control of the House and Obama seems willing to embrace any right-wing idea if it makes him seem more popular, and after all, Obama has now said he favors tax reform.

Posted by: lauren2010 | December 27, 2010 12:15 PM | Report abuse

Revenue neutral should mean moving revenues to the average of the Clinton administration. About 19%.

That was plenty then and its plenty now.

Posted by: krazen1211 | December 27, 2010 2:09 PM | Report abuse

Of course they don't want to reform the Tax Code, because as long as there are "loopholes and dupe holes", they can keep telling everybody the tax code is too complicated, and that the 2% of Rich Americans already pay too much in taxes and therefore should be able to keep their money.

Posted by: lcarter0311 | December 27, 2010 2:40 PM | Report abuse

Reform? Simplify? You Crazy?

And how many lawyers, CPAs, accountants, tax-preparation firms will be out of jobs?

We here in the "law-abiding" country of good ole US of A complicate everything. More laws and codes than anywhere else in the world. More Lawyers per capita than anywhere in the world. More CPAs per capita than anywhere else in the world.

The name of the game is Complication, not Simplification.

Posted by: kishorgala | December 27, 2010 2:53 PM | Report abuse

The new congress needs to stop alot of the spending, then the tax code may be able to be modified.

We have so much government spending that is not constitutional - education, enery to name two. The government needs to get out of business and start governing. Too bad the many lawyers in congress can not do this. Next year - in 2 weeks - we have many more business men/women and doctors joining congress and alot of lawyers were beaten on Nov 2. Maybe we stand a chance at tax reform.

Posted by: annnort | December 27, 2010 3:22 PM | Report abuse

Anything with Max Baucus in charge is just another recipe for disaster for the working class. If you're a "hill-jack" like Baucus in a state of about 600K population, look out for your backside. He only entertains the wealthy interests. Get Baucus the hell out of any committee leadership!

Posted by: bigisle | December 27, 2010 3:35 PM | Report abuse

The Socialist thinks if they put any word in front of "reform" it signifies good change.

Hey Erza! Your Socialist revolution is over! The American people have repudiated your liberalism!

The kind of Reform the Democratic Party needs to think about includes ridding itself of the Marxists who have taken over their party!

Posted by: FormerDemocrat | December 27, 2010 3:46 PM | Report abuse

(Question: Is there any evidence for this view?).

Ummm, obviously. Look at the clamoring of lower tax brackets for them to pay less and the so-called rich to pay more.

Posted by: mdnuts | December 27, 2010 3:48 PM | Report abuse

Flat tax is the only fair way, and it will never happen because too many government agencies, lawyer s and accountants would go belly up.

Posted by: djmolter | December 27, 2010 4:07 PM | Report abuse

Tax Code simplification is very difficult to accomplish, largely because we are asking the legislators who broke the system to fix it.
There is a tremendous amount of leverage embedded in the various carve-outs that have been legislated. "Social engineers" get to incentivize their preferred spending patterns (like home-ownership) and pro-business types get to push for large deductions/credits for their constituents, each while not tinkering with the basic rate schedules that are so contentious in the public arena.
How many average Americans really understand the difference between tax rates, and taxes actually paid?

Posted by: OldUncleTom | December 27, 2010 4:09 PM | Report abuse

Flat tax is the only fair way, and it will never happen because too many government agencies, lawyer s and accountants would go belly up.

Posted by: djmolter | December 27, 2010 4:23 PM | Report abuse

Flat tax is the only fair way, and it will never happen because too many government agencies, lawyer s and accountants would go belly up.

Posted by: djmolter | December 27, 2010 4:24 PM | Report abuse

Anyone got balls... TAX THE RICH. Make them eat sh*t, just that easy

Posted by: longwalksinparis | December 27, 2010 4:30 PM | Report abuse

Flat tax is the only fair way, and it will never happen because too many government agencies, lawyer s and accountants would go belly up.

Posted by: djmolter | December 27, 2010 4:37 PM | Report abuse

Do the math... 200 trillion total US wealth... 100 trillion in the hands of the top 1%... deficit 15 trillion. Even raygunite david stockman stockman says this is a no brainer. TAX THE RICH before they ship your job and their money out of the country.

Posted by: longwalksinparis | December 27, 2010 4:40 PM | Report abuse

Remember they only call it "class war" when the little guy has the balls to fight back.

Posted by: longwalksinparis | December 27, 2010 4:45 PM | Report abuse

Hey so sorry libs, but the tax code is so progressive that there is not a country in Europe that matches what the IRS takes from the wealthy. Go ahead and whine - a VATS is the best way to bring up revenues and make things fair.
Anyone out there thinks choice should be an option when on food stamps our free dole is spent on junk, cigarettes and beer? oh yes.

Posted by: edillon665 | December 27, 2010 4:49 PM | Report abuse

The only fair tax is when top 1-2% pay every dollar of taxes collected. Remember they made it the old fashioned way... on the backs of their workers and consumers. All you get is a retirement watch and a that-a-boy.

Posted by: longwalksinparis | December 27, 2010 4:53 PM | Report abuse

\The GOP will never give one millimeter on eliminating tax loopholes for multinational corporations the very wealth. After all, given the recent Supreme Court findings on campaign finance the GOP has a golden meal ticket from now on. No way they will ever jeopardize that. Casino Jack Abramoff will begin to look like an amateur for years to come.

Posted by: jeffl240 | December 27, 2010 4:56 PM | Report abuse

Effective tax on those making 10m a year and more is 15%. Effective tax on US business is 8%. What a freakin joke... TAX THE RICH

Posted by: longwalksinparis | December 27, 2010 4:58 PM | Report abuse

In the string of comments above I have not read ONE offer by a citizen willing to pay his share of the load. The tax code is a story of selfish deals to benefit this or that constituency. Until most if not all of those constituencies are willing to acknowledge that their tax break is no more moral or necessary than the next guys, we are not going to make much progress. This goes for individuals as well as corporations. THAT is the starting point for discussion - if we nickle and dime the process to death we will protect the "me's" and attack the "them's".

Posted by: sdexnorva | December 27, 2010 5:03 PM | Report abuse

As long as we're 'being real', let's be straight and honest about it, too. The 'reason' there will be no real reform of taxes is the 'reason' there was no real reform of health care: To have real reform would involve having straightforward and honest discussions about the current state of affairs.

Health Care Example: The industry gets 20% overhead. $20 of every dollar you spend goes to lobbying, CEO salaries, reviews to deny coverage, sitting on Boards to set rates, contributions to 'friendly' candidates, etc. With 'reform', tax money now subsidizes these activities.

Tax Example: "Carried interest" now allows billionaires (and others) to pay only 15% on their earnings; middle classes pay 25-28%. Corporations show 'taxes payable', but often pay no taxes what ever; so, they can claim 'tax rates in the US are too high', while tax payments may actually equal zero (and with 'tax credits', their payments may be zero for decades to come. Also, corporations can keep all profits made on foreign subsidiaries out of the country, reinvest them abroad and pay no US taxes.

Now, what corporation and which millionaire/billionaire is going to get behind an honest and straightforward discussion of these issues? Such a discussion would be a necessary pre-requisite for 'meaningful' reform.

It is in the interests of corporations and the wealthy to not have a discussion of these issues. Just as it was in the interests of the health insurance industry not to have a discussion of basic issues prior to and during 'health reform'.

The corporations and the wealthy who own 'the media' (whether so-called liberal and so-called conservative) have some key things in common: They want the middle class carrying the load; They want low to no taxes for themselves, and They want to maintain the status quo as long as possible.

Hence, no tax reform. Tweaking, squeaking and mau-mauing, yes; but no reform.

Posted by: theworm1 | December 27, 2010 5:10 PM | Report abuse

The United states needs to apply drastic measures to rebalance the distribution, as well as the equitable application of tax burdens. The most dramatic and positive effect, mustinitially come from the complete redefining of tax collection at the payroll level. The elimination of payroll taxes would have an immediate positive effect on job creation as it would equally spur employers, reduce costs, as well as increase consumer demand. Tax revenue sources should be transferred toward the user or Value added transactional economic dynamic. As well as other sources of tax revenue generation. Removing this antiquated form of tax burden from the employer as well as his workforce would result in an overall stimulation of the growth curves in all sectors. Lower costs result in lower costs into the consumer sector and empowers the employee toward more control and disbursement of his personal earnings.

Posted by: jmconvey | December 27, 2010 5:15 PM | Report abuse

Ezra, I am counting on you to keep me informed as to what is actually going on in Washington as regards tax reform. There are not many people that I can rely on to tell me the truth of what is going on in the back room.

Posted by: bfree123 | December 27, 2010 5:28 PM | Report abuse

Tax reform has to happen, if for no other reason than the money that we need to run the country cannot continue to come from loans from foreign powers [mostly China]. The deficit must be paid down, and we need to create favorable conditions for new and increased jobs if we are to have a truly vital economy. Unfortunately, this is as about as likely to happen as it is for Congress to enact spending cuts that threaten their favorite programs or state. Too bad, as this is a part of the deal. We keep hearing the word 'austerity' bandied about. These folk in charge haven't a clue as to its meaning.

Posted by: sober1 | December 27, 2010 5:35 PM | Report abuse

there is nothing FAIR about the FAIR tax system the rich do not spend money in an equal percentage as middle class or the poor do, most rich people own their homes out right no mortgage's they don't need the mortgage deduction like middle class tax payers do, they also don't a lot at "stores" they already own most of what they want or need they kust keep putting their new money away and with no income tax they will only get richer and with a fair tax the middle class and poor will only get poorer, what will they do for the people who are now tax exempt liek disabled people's who SS is not taxable or veterans disability check is not taxable willthese people get a special card to show they are tax exempt if you abolish the IRS who will send these people their refunds of the wrongfully collected taxes? Or will the new FAIR tax just stick it to them as it will same people like GATES, BUFFETT and other billionaires will gain from it even though they don't need to and in fact have spoken against this system why because it's not FAIR even the rich know taxes are a way for them to pay back to the nation for giving them the ability ro get rich from this nation, if you live here you help pay for all of it's programs it's part of being American we all use the roads, the military, the FBI etc Libraries, hospitals, ambulances etc when we need them we are glad they are there it's a common cause from which we all benefit.

Posted by: mikey30919 | December 27, 2010 6:01 PM | Report abuse

The Ten Cannots


•You cannot bring about prosperity by discouraging thrift.
•You cannot strengthen the weak by weakening the strong.
•You cannot help the poor man by destroying the rich.
•You cannot further the brotherhood of man by inciting class hatred.
•You cannot build character and courage by taking away man's initiative and independence.
•You cannot help small men by tearing down big men.
•You cannot lift the wage earner by pulling down the wage payer.
•You cannot keep out of trouble by spending more than your income.
•You cannot establish security on borrowed money.
•You cannot help men permanently by doing for them what they will not do for themselves.

Written in 1916 - Ezra needs to learn these.

Posted by: Zorkman | December 27, 2010 6:27 PM | Report abuse

There is nothing stopping these "rich" men from paying more taxes into the State and Federal treasuries. They can CHOOSE to do so, but they don't. Actions speak louder than words, so they don't REALLY mean it. If they did, they could show us when and how they did it.

Even in Buffett and Gates gave ALL they have, it wouldn't put a dent in the national debt of almost $14 trillion dollars.
$14,000,000,000,000 is 14 thousand billion

Posted by: Zorkman | December 27, 2010 6:31 PM | Report abuse

Posted by: djmolter:

Flat tax is the only fair way, and it will never happen because too many government agencies, lawyer s and accountants would go belly up.
******************************************
Too bad this is true, but a flat tax on per capita family income IS the only fair tax; NO LOOPHOLES at all except family size! Also, businesses should be taxed on GROSS INCOME, not net.

If this were done, all would pay their fair share and the government would be able to cut rates after the deficit is paid off because they would be rolling in dollars...

Could a WaPo columnist explain why this idea would or would not work as a method to finance a fair and generous government?

Posted by: shayladane | December 27, 2010 7:18 PM | Report abuse

Many existing laws and regulations apply specifically to pregnant women. Several provisions of the Affordable Care Act offer new benefits for expecting mothers. Search online for "Wise Health Insurance" if you need affordable insurance for yourself or your wife.

Posted by: kathrynmuniz | December 28, 2010 1:47 AM | Report abuse

Those who create tax code tend to be rich.

That's pretty simple arithmetic.

Posted by: gpsman | December 28, 2010 9:05 AM | Report abuse

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Posted by: sdgashasdg | December 28, 2010 11:38 PM | Report abuse

If you want to kill any chance for tax reform, assign it to Max Baucus's committee. They are the ones who created this monster, what possible reason would they have to destroy it?

Posted by: JBaustian | December 28, 2010 11:58 PM | Report abuse

We need to increase Capital Gains Tax immediately.

Speculation caused the housing crisis, and is not helping the recession. Why should individual bankers get 7, 8 or 9 figure bonuses? How does that level of incredulous compensation contribute to the nation's economy? It's a zero sum game, just a huge casino.

Our brightest Americans are all currently incentivized to work in the non-productive banking industry. Our brain-capital would be better served elsewhere such as technology, r&d, infrastructure, healthcare, management.

Posted by: DCSNARK | December 29, 2010 2:49 PM | Report abuse

We need to increase Capital Gains Tax immediately.

Speculation caused the housing crisis, and is not helping the recession. Why should individual bankers get 7, 8 or 9 figure bonuses? How does that level of incredulous compensation contribute to the nation's economy? It's a zero sum game, just a huge casino.

Our brightest Americans are all currently incentivized to work in the non-productive banking industry. Our brain-capital would be better served elsewhere such as technology, r&d, infrastructure, healthcare, management.

Posted by: DCSNARK | December 29, 2010 2:50 PM | Report abuse

We need to increase Capital Gains Tax immediately.

Speculation caused the housing crisis, and is not helping the recession. Why should individual bankers get 7, 8 or 9 figure bonuses? How does that level of incredulous compensation contribute to the nation's economy? It's a zero sum game, just a huge casino.

Our brightest Americans are all currently incentivized to work in the non-productive banking industry. Our brain-capital would be better served elsewhere such as technology, r&d, infrastructure, healthcare, management.

Posted by: DCSNARK | December 29, 2010 2:51 PM | Report abuse

The recently-enacted national tax cut extension and expansion will benefit Arizonans – adding billions to the state economy, and thousands into workers’ pockets. It might even restore some of the confidence needed to get the economy humming again. And it will likely spur business investment, which could boost job growth.

But in a year or two we’ll be back in the same spot we were before Congress passed the bill on December 17. So let’s hold our representatives to it when they say that they plan to take up comprehensive tax reform next year. That doesn’t mean eliminating a tax break here or closing a loophole there – it means drastic restructuring of our revenue system, and dramatic simplification of a tax code that now runs 70,000 pages.

http://www.arizonaic.org/blog/323-how-the-858-billion-tax-cut-plan-will-benefit-arizonans

Posted by: MyAIC | December 29, 2010 6:56 PM | Report abuse

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