Saturday, April 14, 2007

Tax Reform vs. Tax Relief

Another Tax Day has come and gone, but the Internal Revenue Service remains essentially unmoved and unchanged. Accordingly, instead of continuing to advocate tax relief, the right should focus more on tax reform.

The Cleanse the Code coalition is an excellent example why this works. As NTU's John Berthoud explained at the time, while members of the coalition disagree sharply on specifics (for instance, whether the code should be more or less progressive), they all agree that the current system should be scrapped in favor of something "simpler, fairer, and more transparent."

Without even addressing whether the current code is unfair, there are three strong reasons why reform should supersede relief:

1. Reform is more urgent. Compliance with the tax code's inns and outs, especially if you're self-employed, necessitates a significant expenditure of both time (which translates into lost productivity) and money (to pay an accountant to ascertain your particular loopholes).

2. Reform is less divisive, easier to identify with, and thus easier to sell. Tax cuts are always controversial. By contrast, there is no one whom the current code, at 67,204 pages and with 1,638 forms, does not frustrate—even the experts As Deroy Murdock reminds us,

USA Today recently picked four tax professionals to create returns for the imaginary Bailey family. They generated four different amounts for taxes owed. In 1998, Money magazine asked 46 tax pros to file for another hypothetical household. These experts gave Money 46 different tax-liability figures, varying from $34,240 to $68,912.

3. Reform is more important. In the same way that conservatives now emphasize the importance of judicial appointments (since federal judges receive lifetime tenure), we should seek changes that are permanent rather than temporary, which are so institutional they can't be repealed by an executive order from the next president.

Update (4/26/07): Another reason to prioritize reform: The code's complexity makes CPAs so cautious that they now err on the side of overpayment. Consequently, writes Alex Adrianson of Heritage, "[T]ax preparers are more of an extension of the IRS than advocates for taxpayers."