Death and Taxes: At Least One Is Certain

September 19, 2005

An old saying contends that the only certainties in life are death and taxes. However, the federal tax code’s instability leads one to believe that the only certainty left in life is indeed death.

Surprisingly, the federal tax code has been relatively stable since the tax cuts of 2001 and 2003. In the few years since those tax cuts, taxpayers and businesses have learned to operate within the confines of the current tax system. But with certain provisions of the tax cuts marked for expiration in the near future, there has been talk on Capitol Hill of allowing the tax cuts to expire. For instance, members of the Michigan congressional delegation are for eliminating the tax cuts. From the Detroit Free Press:

Congress should consider eliminating some of President Bush's tax cuts to help pay for the massive post-Katrina reconstruction of the Gulf Coast and the ongoing war in Iraq, members of Michigan's congressional delegation said Friday.

President Bush, however, stated on Friday that Katrina reconstruction would not be financed by a tax increase. From Reuters:

President George W. Bush, facing alarm from conservatives over the soaring cost of post-Katrina rebuilding, said on Friday the U.S. budget could handle the expense and he would not raise taxes to pay for it.

Although the tax code can be uncertain, it is always certain that governments will levy taxes to fund programs. All taxes -- even the most neutral -- distort economic activity in some way. In addition to tax policies designed with low rates and wide bases, the best way for policy makers to encourage growth and efficiency through the tax code is to leave it alone.

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