April 17, 2006

Tax Reform Still on America’s Radar

(The following article originally appeared in the April 15, 2006 edition of the Washington Times.)

It’s tax time, so there’s no shortage of outrage over Internal Revenue Service forms. But according to one survey, a shocking number of those annoyed taxpayers are willing to put their money where their mouths are to get a simpler, less painful tax code.

Last month, the Tax Foundation polled Americans to see if they would be willing to give up some tax deductions to make the tax code simpler. A surprising majority — 52 percent — said they would, indeed, be willing to give back some deductions for less headaches at tax time.

That’s a bombshell for federal lawmakers who’ve dragged their feet on federal tax reform this year.

Lawmakers are understandably timid about fundamental tax reform. They love handing out tax goodies, and tax simplification means trimming back even the most popular deductions like for home mortgage interest, state-and-local taxes, and the sacrosanct charitable deduction. Congress assumes people won’t give up deductions without a fight, so tax reform is an issue Washington loves to hate.

Our survey turns that result on its head. More deductions mean more tax headaches, which is why the survey found those most willing to give up deductions were taxpayers who benefit most from them–those who itemize on tax returns, claim the mortgage interest deduction, and have incomes of more than $75,000.

They understand the dual-edged nature of tax preferences, and struggle through complex rules, definitions and schedules at tax time. If even these folks are ready to wipe the tax slate clean, we’re clearly ripe for reform.

Taxes complex, returns painful
With the dreaded tax deadline looming, some other survey results were less of a shock. When asked if federal income taxes are too high, some 59 percent said they were, up 9 percentage points from just two years ago. As the effects of the 2001 and 2003 Bush tax cuts expire, America’s tax pain is on the rise for the first time in five years.

What about the value of government services received for those tax dollars? Almost two-thirds said the value received from Washington was either poor or fair — something I call the “Post Office Effect.”

When asked if the tax code needs minor or major repairs, most Americans reached for a sledgehammer rather than a scalpel. Eighty percent said federal taxes need major changes or a complete overhaul. Incredibly, 2 percent said the tax code is fine as is — inconceivable to anyone subjected to this year’s 142-page 1040-form instructions.

Deficit tax? Forget it
Since the skyrocketing federal budget deficit has been in the headlines — now up to $371 billion this year, or $2,700 per individual tax return — we asked if people would be willing to pony up an extra tax to balance the nation’s books.

A whopping 79 percent refused, with just 9 percent willing to pay the extra tax. Americans may be willing to open their pocketbooks for simpler taxes, but they won’t give up a dime to cut the deficit.

Here’s a math question for deficit-hawks in Congress hoping to repeal the Bush tax cuts. If only 9 percent of Americans are willing to fork over extra taxes for the deficit, while 52 percent will do so for tax reform, which issue gets you re-elected? Not a hard problem.

So as Americans curse through another tax season, let’s consider the bright side: Members of Congress file tax returns too. And sooner or later, they’ll be willing to pay for a simpler tax code as well.

Andrew Chamberlain is an economist at the Tax Foundation. The tax survey conducted by Harris Interactive® is available at www.taxfoundation.org.