Why Income Tax Reform Is So Difficult

Ask yourself: Why can’t the income tax be made as simple and compliance easy as paying the federal motor-fuel tax? The motor-fuel tax does not require personal motorist tax returns to be filed to collect the tax, nor are there schedules to file reporting vehicle information, miles driven, and purposes served from one’s trips. Motorists don’t face the IRS every motorist-taxable year. So, why can’t we have an income-tax reform which moves tax collection from the system of person taxation to a system similar to that of the motor-fuel tax not requiring personal motorist tax returns?

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By James K. Jeanblanc l June 8, 2017

Senator Russell Long served on the Senate Finance Committee from 1953 to 1966, when he became chairman until 1981.

Most everyone would accept real income-tax reform as having the income tax made simple, compliance-easy, and low-rate. But, this goal remains elusive. Despite the many tax reform acts passed by Congress over the years, the tax mess has continued. And, none of the recently-proposed plans present any picture of real income-tax reform.

Today’s reform plans seem as new prescriptions written to re-jigger the tax rules and rates, with a doctor’s pat on the back – “all will be better this time.” Even so, each time, reaching a consensus on a prescription for the tax mess is difficult and contentious. Why must this be so?

Misdiagnosis. Perhaps, the tax mess has been misdiagnosed. The common thought is that we have an income tax in need of reform. Ignored is the reality that the tax system functions as a person-taxing system, not as a true income-tax system. People are made the subjects of taxation, with each person’s “taxable income” (however “taxable income” might be determined for that particular person) made the key factor of how that person is individually taxed.

Person Taxation. Today, every recipient with “taxable income” must file a personal return with the IRS and pay the tax he owes. That tax is assessed against him, not his income. It’s a very inefficient taxing system costing the Treasury billions to administer and imposing heavy compliance burdens on taxpayers. Person taxation, and the meting-out of personal tax breaks, income exemptions and exclusions that go with it, requires high marginal tax rates, which, in turn, undermine economic growth.

Persons as the Tax Subjects. People are not easy subjects to be taxed. They are not uniform and inert, to be easily taxed in terms of their quantity or dollar value assigned to them. As tax subjects, they are innately prone to squealing, resisting, and self-positioning themselves (even when in full view of the tax authorities) to avoid the tax. They have an attitude problem, thinking someone else should pay more and their personal tax breaks and income exclusions are needed shields from high-rate taxation. In stark contrast, taxed property and taxed transactions are more easy subjects for taxation. Therein lies the difficulty of the attempts at “income” tax reform.

As a side point (intended only to give perspective, not to raise any Constitutional objection), the Founders imposed severe limits on direct taxation (such as the taxing of property or people), limitations which were relaxed by the 16th Amendment to allow for an income tax. However, the express language of the 16th Amendment only authorizes taxation of “incomes,” omitting mention of “persons” as subjects for taxation.

Our Flawed System. Under our tax system, vast chunks of income escape taxation. Taxation depends upon conditions having little or nothing to do with generating income, such as who might be the payer of the income, income type, personal situation of the recipient, total income reported, and what the recipient does with his income. Personal tax breaks abound, and marginal tax rates widely vary person-by-person. This is a system of selected tax winners and losers. It’s a tax system where it’s rare to find any two persons, even with the same income, taxed at the same effective rate.

Years ago, the late Senator Russell Long (then Chairman of the Senate Finance Committee), made a famous observation about the person-tax system. He was focusing upon proposals then before his Committee for tax increases on some taxpayers to pay for tax breaks for other taxpayers. “Don’t tax thee, don’t tax me; tax that other fellow behind the tree.”

Diagnosis for Real Income Tax Reform. The person tax feature built into the tax system is like a disease, making for an ever-worsening tax mess. Cure requires its removal. Then, the tax system can be reconstituted into a true tax on income. And, only then, the goal for a simple, low-rate income tax becomes possible and sustainable.

Ask Yourself. Why can’t the income tax be made as simple and compliance-easy as paying the federal motor-vehicle fuel tax? The motor-fuel tax does not require personal motorist tax returns to be filed to collect the tax, nor are there schedules to file reporting vehicle information, miles driven, and purposes served from one’s trips. Motorists don’t face the IRS every motorist-taxable year. So, why can’t we have an income-tax reform which moves tax collection from the system of person taxation to a system similar to that of the motor-fuel tax not requiring personal motorist tax returns?

This is not an impossible dream. It’s achievable – consider the FreedomTax.

The FreedomTax. This is a proposal for a true 10% flat tax on all income, including business income. Person taxation would end, along with all of the accompanying personal tax breaks, tax loopholes, income exclusions, and tax exemptions. Income would be made the sole focus of the tax.

Noteworthy for those wishing to keep their income tax breaks and those angling for more, tax breaks lose their value in a regime of low-rate taxation. At the same time, the after-tax returns on saving, investment, and business activity will be greatly increased, fostering across-the-board economic and job growth.

Breathtaking would be the FreedomTax’s reduction in the compliance burdens and the tax simplification achieved. The Tax Code would be reduced by an estimated 95%. From a comprehensive income base, the FreedomTax can be expected to raise at least as much tax revenue as the current tax mess replaced.

Under the FreedomTax, the income tax would be collected at the source of payment on dividend, interest, retirement, and salary income. Most Americans would never have to file a tax return, not even a postcard.


James K. Jeanblanc is tax counsel to the law firm, Grove, Jaskiewicz & Cobert in Washington, D.C. During the tax reform act of 1969, he was directly involved in the House-Senate drafting sessions. He is a graduate of the University of Illinois School of Law and received his LL.M. degree in Taxation from George Washington University. He is a former adjunct professor of law for the Tax Policy Seminar in the graduate law program of the Georgetown University Law School and has been a lecturer of law in the graduate law program of the George Washington University Law School. He is a former chairman of the Committee on Tax Accounting Problems of the Tax Section of the American Bar Association. Formerly, he was an attorney in the Office of the Tax Legislative, U.S. Treasury Department and an Assistant Branch Chief of the Corporate Tax Branch of the Legislation and Regulations Division of the Internal Revenue Service. He is the author of the FreedomTax and has a half-century of income tax experience involving tax legislation, tax regulation, IRS ruling, tax planning, and tax controversy matters. He is Senior Fellow for Tax Policy at the Selous Foundation for Public Policy Research and a contributor to SFPPR News & Analysis.

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