America’s net tax gap for 2006 was estimated at about $385 billion. The net tax gap is the amount owed to the U.S.treasury but not collected. Given historical growth in, it is reasonable to assume that the gap is now running at about $420 to $440 billion/year. As the Reform Party has pointed out before, creation and maintenance of the tax gap arises as a part of two-party political business as usual. Allowing hundreds of billions of tax dollars to go uncollected each year serves no obvious economic purpose other than to feed the insatiable demands for cash by both political parties and most of their politicians.
Despite the deeply ingrained pay-to-play nature of politics at the national level, there may be something different on the horizon. Although it is early in the process, two influential U.S. senators are proposing something astonishing. Senate finance committee chair Max Baucus (D-MT) and ranking member Orrin Hatch (R-UT) have proposed an overhaul of the U.S. tax code starting from a clean slate with recipients of tax breaks expected to justify those breaks or lose them. This proposal fundamentally runs counter to the political status quo because tax breaks and lax tax code enforcement are typically not linked to a critical cost-benefit test.
Although vague and unrealistic in some aspects , e.g., congressional feedback is requested by July 26, 2013, the Baucus-Hatch proposal is very important. It is a rare example of powerful sitting senators (a) publicly pointing out some of the profound flaws in the U.S. tax code and (b) asking to fix it. The Reform Party simply assumes the proposal is an honest attempt to overhaul the tax code. There is no doubt that special interests and their lobbyists will fight any changes that affects their revenue flows, regardless of how much good to the the public interest might come from significant, intelligent and fair tax code reform. The fight to oppose change will no doubt be quiet, subtle and mostly behind closed doors. Given the formidable power of the interests who will fight to maintain the status quo, success at overhauling the tax code is is low, but its not zero. If nothing else, the size of our debt and imminent demands of an aging population on social spending programs exert some pressure to do something.
Given the circumstances, every adult American should not just passively support what Baucus and Hatch have apparently proposed. The Reform Party assumes that most Americans opposes the status quo, probably a large majority.
It isn’t just the huge tax gap that is at stake here. The tax code contains tens or hundreds of billions in tax breaks that add little or nothing to the American economy or its competitiveness. Tax compliance consumes 6.1 billion hours/year by one estimate. Tax law drives much behavior that is focused on tax breaks and nothing more with little or nothing accomplished other than transfer of wealth to recipients and negligible or no positive impact on the economy. Of course, the tax compliance industry employs millions of people and that is a factor to be considered. Intelligent tax reform boils down to cost-benefit analyses. There will be winners and losers, but what we have now is inefficient and grossly unfair.
If average Americans make no showing of support for meaningful tax code reform, then it is a good bet that non-average Americans will fight for, and keep, business as usual. So, if you want things to remain status quo, do nothing. If you want change, say something. Location and contact information for senators and representatives is here:http://www.govtrack.us/congress/members/, http://www.house.gov/representatives/find/, http://www.senate.gov/general/contact_information/senators_cfm.cfm. If you don’t know what to say, some comments in support of reform are listed below. Also, if you have a personal tax story, senator Baucus and representative David Kemp (R-MI) set up a web site to accept such anecdotes from taxpayers: http://taxreform.gov/. They are looking for looking for help and public support.
1. GAO report summary: http://www.gao.gov/products/GAO-12-651T.
2. Reform Party essay regarding special interest money and politics: http://reformparty.org/reform-party-of-california-essays-politics-and-special-interest-money/.
3. The Baucus-Hatch proposal: http://www.finance.senate.gov/imo/media/doc/06272013%20Call%20for%20Input%20on%20Tax%20Reform1.pdf; Media comment: http://www.politico.com/story/2013/06/max-baucus-orrin-hatch-tax-reform-plan-93465.html.
4. Tax compliance links: http://www.taxpayeradvocate.irs.gov/Media-Resources/Press-Release; http://www.forbes.com/sites/janetnovack/2011/01/05/tax-waste-6-1-billion-hours-spent-complying-with-federal-tax-code/.
5. Potential comments: I believe that tax code reform is important because;
(i) the current code allows billions of dollars to be lost to the U.S. treasury,
(ii) the benefits of many tax breaks do not serve the economy or fill another obvious, legitimate need,
(iii) allowing billions of tax dollars to go uncollected undermines trust in our political institutions,
(iv) the tax code is so complex that it gives the appearance, if not the reality, of being unfair
(v) the tax code is unfair for people paid on salary because they have no chance to cheat or game the system, unlike self-employed individuals and large businesses who have hundreds of ways to avoid and/or evade taxes,
(vi) the U.S. cannot afford to sustain the current tax system because it is too much of a burden to comply with,
(viii) U.S. tax policy is unfair because congress does not allow the IRS to enforce tax laws, and/or
(ix) (any other comment you would like to make).