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Wyden’s Tax Plan Meets Need Halfway

January 17th, 2006 by dk

Senator Ron Wyden visited the City Club of Eugene last week to talk about his “Fair Flat Tax Act of 2005.” Fundraising scandals swirling around Washington this month give taxes paid and avoided sudden relevance. Wyden announced his plan two months ago and already it sounds out of date.

Consider the story of the two foolish roofers. One was throwing away half the nails in the box. The coworker asked what was wrong with all those nails. “They’re no good ‘cuz they’re pointy on the wrong end,” said the first. The coworker replied, “Don’t throw them out, you fool. Those are ceiling nails!”

Wyden’s plan addresses half the issue of tax fairness, but not the half that’s pointed at the moment.

His plan is a good one, as far as it goes. It simplifies the personal tax return. Most of us can complete the form ourselves in a lunch hour. It reduces the number of personal tax brackets to three. It treats earned income and investment income the same. It eliminates forty tax breaks, but keeps the most popular deductions most people use. It claims to save the middle class money in taxes, to say nothing of the time and money we invest in getting the forms themselves filled out. It doesn’t “soak the rich,” but it does tax all corporate earnings at a single rate of 35 percent.

Meanwhile, all Washington is abuzz about megalobbyist Jack Abramoff’s bargain he struck with federal prosecutors to “name names” in return for leniency. Lawmakers, including Senator Gordon Smith and Representative Peter Defazio, have rushed to return or give away money that came from Abramoff or his firm. “Campaign finance reform” is again a hot topic.

While politicians have been talking about simplifying the tax code, 600 pages of new rules have been added, just in the last year. Ask your accountant to see a copy of the tax code and they will point not to a book, but to a shelf.

Senator Wyden would be smart to retool his 2005 plan for the new year, and capitalize on the current headlines. He wants to make the tax form short and presumably sweet for regular taxpayers. Good for him. How about matching it with a special 1040-XL (extra large) form for any person or corporation receiving any tax advantage from the federal government?

Think of it. Every single government favor would have its own line on the 1040-XL, referencing the legislative instrument where the benefit is defined. The form itself, delineating thousands and thousands of tax breaks, would go on for hundreds of pages. Every library and post office would be given a copy. Any taxpayer could request a copy. Any person or corporation wanting to take advantage of any of these benefits would be required to use the 1040-XL.

Without tampering with a single tax preference, the 1040-XL would bring to light the reality of how government and business are bound together. A sober conversation could begin about whether that’s good or bad, not propelled by occasional “bad apple” stories like Abramoff’s.

News reporters each January and April would compare the weight of the 1040-XL to the previous year’s version and to a grown poodle. But reporters would also look into line 12,157 and ask the government how many tax filers took that deduction designed for “Utah-based mining companies using public lands, with a workforce in excess of 2,000, which also has investments in natural gas exploration.” The government doesn’t reveal names of individual filers, of course, but routinely releases aggregated information, culled from filed returns. If line 12,157 was claimed only once in 2006, it wouldn’t be hard to figure out by whom.

Bloggers and others who want to understand or explain how government works will “data mine” the information. Inspired by what did for rhetoric-minded English majors, math majors with the same civic zeal will launch

Lobbyists will change their ways. Special interests will necessarily become less special, since lines in the 1040-XL claimed by a single company will be easiest to expose. Crafting legislative language that benefits a client, but also other similar companies that meet the description will be safer but less valuable. Why hire a lobbyist to get government advantage, if your competitors will get the same benefit without paying for the lobbyist?

Politicians will vow to repeal provisions until the 1040-XL weighs less than the last Harry Potter novel. “Smaller government” will be measurable.

Best of all, it will demonstrate that, while most of us want a tax system that’s simple, a few of us benefit from its complexity. If Senator Wyden’s tax plan offered a new and better form for both groups, he’d be using all the nails in the box.

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