April 20, 2005

TAX REFORM PART ONE: A SYSTEMIC PROBLEM

Guest opinion submitted by Idaho Senator Mike Crapo

In 1914, the first year income tax was collected, Americans paid an average per capita tax of 41 cents--and of the 99 million people in the United States, only one percent of the population was obligated to pay taxes at all. Fast forward 90 years: In 2004, 62 percent of our 292 million citizens filed as individual taxpayers. In almost a century, weâ??ve had close to a 300 percent increase in population and a far greater increase in the number of individual income taxpayers.Setting aside the subject of outrageous growth of federal government spending for another day, the population, tax base and tax revenue have grown dramatically over the past century. As taxes have increased, the complexity of the tax code has increased. We have had a few major tax reforms in our history, usually around periods of war. An exception to this was the last time the tax code was seriously examined, in 1986. At that time some major reforms were enacted, but those efforts have since become obscured by continued pandering to special interests. Today we face a tax system behemoth that must be dismantled in order to put this country on the right track in terms of a fiscally responsible government and prospering economy. The Presidentâ??s Advisory Panel on Federal Tax Reform was created in late 2004 to address this issue. They are part of the way through their nationwide meetings and public comment period, and I look forward to hearing their final recommendations in July which they will bring to the Senate Finance Committee.Their findings at this point in the process are telling, but for many Idahoans, not surprising:-We have lost sight of the fact that the sole purpose of our tax system is to raise revenues to fund government.-Tax provisions favoring certain activities or benefiting certain taxpayers creates instability and unnecessary complexity, which, in turn, causes inefficient resource allocation. The best tax system is broad-based and special treatment is granted only when it can be demonstrated that this treatment justifies higher taxes for all taxpayers.-The unpredictable nature of current tax provisions in the long term negatively affects personal and business economic decisions, hindering economic growth.-The current tax system creates perceptions (real, in many cases) of unfairness and allows people to manipulate rules to avoid paying their fair share. Additionally, there is a lack of transparency that prevents people from understanding their own obligations.-Frequent changes in the tax code and temporary provisions cause uncertainty and raise compliance costs for individuals and businesses.-Tax simplicity, tax fairness and economic growth are interrelated ideas that sometimes are at odds with one another. Lawmakers make choices among these objectives and simplicity tends to be the first to land on the threshing room floor. Tax reform isnâ??t nearly as interesting as some of the other â??hotâ?? political topics, but make no mistakeâ??taxes are part of our every day lives, and the decisions we make (or donâ??t make) about our system today will have far-reaching effects on the lives of our children and grandchildren. Take the time to be involved in this critical process. YOUR comments are being solicited by the President at www.taxreformpanel.gov on specific proposals until April 29, 2005. Make your voice heard today and make a difference.