By the time you read this, we may have a new balance of power in Washington. If Democrats have the upper hand, we can worry that they'll continue the Clinton-Gore push to make the tax code more complicated--albeit a bit more progressive, too. If the Republicans are in the driver's seat, then it appears that tax cuts targeted to the rich will be at the top of the agenda.
Neither vision is attractive to those of us who believe in a fair, straightforward tax system. But whichever party is in charge, perhaps it can be persuaded to amend the details of its presidential candidate's campaign tax promises without sacrificing the basic themes.
Democrats will no doubt seek to limit most tax cuts to middle- and low-income taxpayers. That's a noble goal. But why not replace the long list of "targeted" tax breaks that Al Gore promoted in his campaign with a simple tax cut for everybody who works? Here's one idea: Right now, Social Security payroll taxes apply to every dollar a person earns up to $76,200. Why not exempt the first $6,000 or so of earnings from tax? To deal with people with multiple employers and other complications, the simplest way to implement this would be through an easy-to-calculate income-tax credit. Such a payroll-tax cut would be similar to Gore's targeted tax breaks in terms of cost and progressivity, but it would be much less cumbersome and intrusive.
Republicans ought to think hard over the next few months and decide whether they want to make good on George W. Bush's campaign rhetoric by focusing tax relief on those who need help the most--or whether they want to prove Bush's detractors right by pursuing a budget-busting giveaway to the wealthy.
Bush argued strenuously during the campaign that we need lower marginal income-tax rates, especially for families "on the outskirts of poverty." Well, fine. But if that's the real goal, Republicans ought to take a page out of the playbook of their hero Ronald Reagan. Reagan discovered in his second term that the responsible and fair way to reduce tax rates is to close tax loopholes at the same time. The upshot was his 1986 tax reform act succeeded in slashing the top rate from 50 percent to only 28 percent while the tax system became more progressive than it was before.
We know that many of the nation's largest corporations are making a mockery of the income tax and that lots of wealthy people are using legal technicalities and illegal tax havens to avoid and evade their taxes. If Republicans are willing to crack down on these abuses, there could be an opportunity to cut marginal tax rates without breaking the bank. And if the GOP accepts tax-rate reductions that are not tilted toward the very top--Bush's campaign plan dropped the 39.6 percent top tax rate by 6.6 percentage points but left most of the bottom tax bracket of 15 percent unchanged--then they can honor Bush's much disputed promise to deliver a tax code at least as progressive as the one we have now.
Is there any hope that Democrats or Republicans in Washington will agree with any of this advice? Well, why not? After all, congressional Democrats (including Al Gore) voted overwhelmingly for tax simplification back in 1986 and became enamored of tax complexity only recently, during the Clinton administration. Few Republicans are as strongly committed to redistributing the nation's wealth in favor of the rich as is Bill Archer, but the Texas Republican is retiring and stepping down as chairman of the House Ways and Means Committee. And many GOP lawmakers might actually prefer a tax code that's free of loopholes and gimmicks designed to tell businesses and working people what to do.
So, to whichever party is now ascendant, congratulations. Ever optimistic, I look forward to working with you next year.