Democratic Draft Platform Details More Tax Complexity Despite Call for Simplification

August 12, 2008

The draft 2008 Democratic Party platform plank on taxes was leaked last week. It reads:

Restoring Fairness to our Tax Code
We must reform our tax code. It's thousands of pages long, a monstrosity that high-priced lobbyists have rigged with page after page of special interest loopholes and tax shelters. We will shut down the corporate loopholes and tax havens and use the money so that we can provide an immediate middle-class tax cut that will offer relief to workers and their families. We'll eliminate income taxes for millions of retirees, because every senior deserves to live out their life in dignity and respect. We won't increase taxes on any family earning under $250,000 and we will offer additional tax cuts for middle class families. For families making more than $250,000, we'll ask them to give back a portion of the Bush tax cuts to invest in health care and other key priorities. We will expand the Earned Income Tax Credit, and dramatically simplify tax filings so that millions of Americans can do their taxes in less than five minutes.

Some comments:

  • You cannot both reduce tax complexity and create lots of new special interest deductions and credits. Simplifying our tax code is a great idea, and the plank is correct in noting that the Internal Revenue Code is littered with deductions, credit, exemptions, and exclusions that cause much of the complexity. However, far from proposing to eliminate these and lower rates overall, the platform actually proposes to create new special interest deductions and credits, worsening the complexity.

Among the proposals (each with their vested interests and lobbyists) are expanded EITC and child tax credits; exclusions for small business capital gains and seniors earning less than $50,000 per year; and new tax credits for health insurance, "college students who serve," and for "keep[ing] and maintain[ing] good jobs here in the U.S." Each special interest granted an exemption, of course, means that taxes must go up on everything that's left. A better approach would be to junk all these special interest provisions, tax everything the same, and broadly lower rates with the money saved.

  • Why is having to pay income taxes an affront to seniors' "dignity and respect?" Or if it is, why only seniors' dignity and respect?
  • As for "ask[ing families] to give back a portion of the Bush tax cuts," do they mean "ask" or "require by law?"
  • Later on, the draft platform pledges to "finally end the tax breaks that ship jobs overseas." Of course, there is no line on the corporate tax return giving you credits for each job you send overseas. Perhaps the reference is to the U.S.'s practice of taxing all income worldwide earned by citizens (most other countries tax only income earned within their borders), necessitating credits for taxes paid overseas, and taxing income only as it returns to the U.S. Fiddling with this system should not be done piecemeal or lightly, as it could have huge impacts on cross-border investment.

We recognize that sometimes consistency is a little too much to ask for in political promises. But this draft platform evidently wasn't written by anybody who has thought seriously about tax policy.


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