Georgia on my mind – on Tax Day, at least
By W. James Antle III
For American taxpayers, the dreaded day when federal income taxes are due has come and gone. But according to the nonpartisan Tax Foundation, Tax Freedom Day came only as these words were being written, two days after the April 15 IRS filing deadline.
The basis of this calculation is simple: 29.1 percent of the average American’s pay goes toward his state, local and federal tax burden. That translates into roughly 107 days spent this year working for government, more than for food, clothing or medical care. The compliances costs are similarly staggering, amounting to 6.6 billion man hours and more than $223 billion.
And things could get worse in coming years. The alternative minimum tax (AMT), designed to prevent the rich from getting off without any income-tax liability, threatens to wipe out the Bush tax cuts for many working families easily distinguishable from Donald Trump. AMT is not indexed to inflation, so it threatens to hit a growing percentage of the middle class with a new kind of bracket creep.
Moreover, the survival of the 2001 and 2003 tax cuts signed into law by President Bush is not assured. Under current law, many of these reductions are scheduled to expire in 2011. Even some Republicans, hoping for revenues that will allow them to avert spending cuts, are reluctant to make them permanent.
Is there another way? The cover story in the April 16 Economist suggests there might be. Former Soviet bloc countries, including Russia, Georgia and Estonia, have turned away from byzantine progressive tax codes in order to embrace “the flat-tax revolution.”
Since 2001, Russia has taxed personal income at a uniform 13 percent rate. Last year, Slovakia imposed a 19 percent single rate on personal and corporate income. Serbia, Romania and Ukraine all have flat-tax rates under 20 percent. In all, the Economist lists eight countries in the region that have moved to some version of the flat tax, with an opposition party in Poland vying to have their country join them.
Can it be done in the United States, where corporate income is taxed at 35 percent? President Bush has named a tax reform commission charged with promoting tax simplification, if not lower rates, and promised to keep the issue high on his second-term agenda.
But the president’s Social Security reform bid is already facing more trouble than the White House anticipated, and his guest-worker immigration “reforms” have sparked an open revolt by House Republicans. With a battle over judges looming, it isn’t clear how much of that famous political capital will be left over for tax reform. The last tax-reform commission, named by then GOP congressional leaders Bob Dole and Newt Gingrich and chaired by Jack Kemp, produced a flat-tax plan that went nowhere.
Some are already criticizing Bush for flattening federal income taxes too much. “ Chalk up President Bush as not just a tax cutter but also a tax flattener,” the Christian Science Monitor reported. “Under Mr. Bush and a Republican Congress, big tax cuts since 2001 have given major tax reductions to those wealthy individuals presumed, up to now, to be able to afford paying a bigger chunk of their income in taxes.”
Yet experts quoted in the Economist question how much fairness the complexity of a progressive income tax really buys. Jeffrey Owens and Stuart Hamilton of the OECD estimate that in New Zealand, for instance, only the top ten percent of income-earners actually pay significantly more under the steeply graduated code in place there now than they would under a 25 percent flat tax.
This doesn’t mean that a flat tax – and not all versions of the flat tax are created equal – wouldn’t raise other problems. Most proposals that have any chance of being seriously debated, much less actually passed, contain such generous personal allowances that would drop millions of lower and middle-income households off the tax rolls entirely, thereby making any advocacy on their part for bigger government entirely cost-free.
It also may be the case, as some conservatives have argued, that the Holy Grail of fundamental tax reform serves only to distract from more achievable tax cuts. Perhaps the time expended advocating a flat tax would be better spent pushing to keep existing tax reductions in place or expanding tax-free savings, for example.
As we look back on bleary-eyed nights leading up to April 15 spent poring over incomprehensible tax forms, however, we are left to wonder: how long must Americans wait for a tax code as sane as those of the former Soviet Union ?
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