Tax day (extended to April 17 from the familiar April 15) just passed, but the Buffett Rule has been blocked in the Senate. That's the intertwined story from taxland over the past few days. The timing is interesting because, understandably, a lot of people get...more than mildly annoyed whenever they have to do their taxes AND there's a movement on the political left gaining steam to hit the wealthy with higher taxes.
Those on the right are horrified. The impasse means that there just had to be a split-the-difference, "third way" solution on the horizon, and it arrived on Monday, in the form of a New York Times op-ed by Syracuse professor Leonard Burman. He doesn't like the Buffett Rule, but he does believe that capital gains taxes — the taxes that, for example, mega-rich hedge-fund managers pay in income treated as investment returns — should be restored to Reagan-era levels.
He also has some other ideas, related to that reliable old "our taxes are too complicated" chestnut. The Buffett Rule, a.k.a. the "fair share" tax, would add in another whole layer. Here's a sample:
[T]he idea of three different sets of tax rules — regular tax and alternative minimum tax and fair share tax — makes no sense. One set of rules should apply to everyone, and if we close some loopholes, a reformed tax code could satisfy the goal of the Buffett Rule.
Specifically, we should fix the regular income tax to eliminate or curtail the tax loopholes that let rich people avoid tax, especially the lower tax rates on capital gains and dividends. And while it’s true that taxing capital gains at rates up to 35 percent (the current top income tax rate) might be counterproductive (because many investors would choose to hold on to their shares rather than pay the tax), there are other options. For instance, the top rate on capital gains could be raised from the current 15 percent to 28 percent — the rate set by Ronald Reagan’s Tax Reform Act of 1986, but undone in stages by tax changes under the administrations of Bill Clinton and George W. Bush.
Opponents — and even some proponents — of tax reform never seem to tire of this fiscal cliché: taxes too complicated, tax code hopelessly intricate, etc. etc. This notion drives the oft-proposed — by the GOP presidential candidates most notably — drive for a flat tax. But even though simplification would eliminate loopholes and filing strategies and provide much less work for accountants and the IRS, it would also limit the ability of government to appropriately tax the wealthy and corporations.
What we really need is a tax code that's as complex as the 21st century. A tax code for the technology age. A tax code that can be precisely calibrated to deal with rising and falling incomes, with economic conditions, with GDP growth, and so on. As I've written before:
Simplicity, it seems, sells. But why?
If anything, federal taxes are far easier to file than ever. I used TurboTax for the first time this year and, once I had gathered all my documents, the process consumed about an hour. In 1979, however, long before TurboTax came along, people managed to deal with 17 tax brackets, using a Bic ballpoint and calculator. In 1945, they confronted 24 brackets with nothing more than a No. 2 pencil, a pad of paper, a pack of Lucky Strikes, and stiff drink.
My point is that the argument, now routinely heard on both sides of the political spectrum, that we must simplify the tax code to prosper as a nation is ridiculous. A relatively inexpensive computer tax program can breeze through six brackets and digest a variety of deductions and special cases. I can't imagine that, in the age of Google, iPhones, and the Cloud tax, technology would choke on, oh...12 brackets?
I admire Burman's honesty, but he's entering the same reality distortion field as tax reformers on both sides of the debate by trying to square the circle over bringing in more revenue while making the tax code "easier" to deal with.