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IBD Editorials - Tax Code's 100th Birthday Is Cause For Reform--Not Celebration


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By Senator John Barrasso

On Sunday, the 16th Amendment that created the federal income tax will turn 100 years old. For most Americans, this anniversary is a cause of headaches, not celebration.

Our tax code is definitely over the hill.

Over the past 100 years, our federal income tax has evolved from a fairly simple system to a complicated mess.

Former Treasury Secretary William Simon once said, "The nation should have a tax system that looks like someone designed it on purpose." Washington is now exploring reforms that would move us closer to that goal.

As that debate gets started, it's important to understand the history and evolution of our national income tax.

The more we know about what went wrong, the more we'll know about what not to do in the future.

Congress passed the nation's first temporary income tax to fund the Civil War effort. The act also included a stamp tax and a licensure tax that required people to pay a federal license fee in order to practice 33 listed professions.

These included doctors, lawyers, photographers, auctioneers, tobacconists, jugglers, confectioners, horse-dealers, soap makers and peddlers.

That income tax was dropped after the Civil War. Between 1868 and 1913, 90% of all federal revenue came from excise taxes on liquor, beer, wine and tobacco.

During that time, there were other temporary income taxes, and constitutional challenges to their validity.

So in 1909, President Taft supported a constitutional amendment giving Congress the power to impose an income tax. Congress passed the amendment that same year, and the necessary states ratified it on Feb. 3, 1913.

Journalist David Brinkley, in his memoir, wrote that the income tax "was voted into law by people who were confident that they themselves would never have to pay it. Envy and resentment (of wealth) carried the day."

After ratification, Congress established a 1% tax rate on income above $3,000 and a 6% surtax on income over $500,000. Less than 1% of Americans paid the new income tax.

Complexity crept into the tax code quickly. In just the first decade of the new tax, Washington created 27 separate tax loopholes. Year after year, the list of tax loopholes grew longer, and the code grew more complicated.

The 1986 tax reform process was a rare bright spot in the history of the tax code because Washington actually eliminated many special tax breaks. In the years since that reform, the code relapsed and added more than 150 new ones.

While the first tax code ran to 400 pages, today it is more than 73,000 pages long.

It includes language like this: "For purposes of paragraph (3), an organization described in paragraph (2) shall be deemed to include an organization described in section 501 (c)(4), (5), or (6) which would be described in paragraph (2) if it were an organization described in section 501 (c)(3)."

With incomprehensible lines like that, it is no surprise that Americans will devote 6.1 billion hours to preparing their taxes and complying with tax laws this year.

It's estimated that complying with the current tax code costs Americans over $350 billion annually. This complexity is a boon for special interests, accountants and tax lawyers, but a huge burden on America's hardworking taxpayers.

After years of making matters worse, it's time for the White House and Congress to solve this problem. We need to finally take this opportunity to make our tax code fairer, flatter and simpler.
Our tax code is so complex that almost anything else would be better. One of the most viable options is to broaden the base and lower the rates.

Under this reform, we would eliminate many tax preferences and lower rates for all taxpayers. We would also lower taxes that discourage investment such as those for capital gains, dividends and savings.

Of course, a complete rewrite should also be on the table. This could mean a national consumption tax, a flat tax, or a more recent proposal known as the "X Tax" that's essentially a progressive consumption tax. All of these are worth talking about.

What we should avoid at all costs is dumping new provisions into our already bloated tax code.

We have done that for far too long. Instead of adding more pages to our current tax code, it is time to stop, take a step back, and consider what the best overall tax system would look like.

If we can do that, then maybe Americans 100 years from now won't waste billions of hours and dollars just trying to find out how much they owe in taxes.

Barrasso, a Republican, is the junior senator from Wyoming.

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