Congratulations! You just filed your tax return. You and the Internal Revenue Service are quits for another year (barring mistakes and audits, of course).
It was a hellish struggle. W-2. Form 1040. Schedule A. The work sheet to see if you need to file Form Something-or-other. Earned income. Unearned income. Early withdrawals from IRA. Alternative Minimum Tax. A 54-line form to separate $85 worth of capital gains into three categories.
There must be, you are thinking, an easier way.
In fact, many easier ways to collect America's taxes are under study. Here is a quick rundown of some of them -- and why you may as well resign yourself to another hellish struggle with the present system next April 15.
But maybe for only three more years. Aren't the Republicans trying to abolish the tax code?
A bill in Congress would abolish the tax code at the end of 2001. The Republicans have promised a vote on it this year.
What would replace the tax code?
That's for the future to decide. Sponsors say no complete overhaul of the tax system will happen if we leave it up to haggling politicians and lobbyists. A mandated expiration date for the existing, flawed tax code sets a deadline and gives us three years to devise something better.
As Steve Forbes put it three years ago during his campaign for the Republican presidential nomination, "You can't tinker with the tax code. You can't reform it. You must kill it, drive a stake through its heart, bury it and hope it never rises again to terrorize the American people."
Amen.
You might think everyone would agree. But Forbes' investor and business-executive friends base many decisions on tax considerations. Three years of uncertainty would prevent any long-range financial planning. And President Clinton, who has denounced the scrap-the-code notion as "misguided, reckless and irresponsible," says that if the bill passes he will veto it.
Then what's the point?
Keep in mind that this is an election year. Republicans enjoy the idea of maneuvering Democrats into lining up, by vote or veto, in favor of keeping the present system.
So it's a political gimmick?
Most tax-reform proposals have to be at least partly political gimmick if they are to gain widespread acceptance. But some are more gimmicky than others.
A couple of schemes now circulating aim to set a ceiling, by law or constitutional amendment, on the total level of taxation. The ostensible reason is that the percentage of national income now being collected as taxes is the highest it has been since the end of World War II.
But this is because a booming economy generates higher incomes and profits to tax. When the boom ends, tax collections will fall. The boom has also made it possible to balance the national budget. To limit tax collections would throw away that achievement.
Worse, such a plan would tie the hands of future lawmakers. If they needed, for example, to finance a defense buildup, they would have to do it with budget deficits, as in the 1980s, since the tax option would be foreclosed.
A related idea is to cap at 25 percent any individual's federal tax bill. One variant, called the "Max Tax," would let the taxpayer choose between filing under the current system or paying 25 percent of his gross income. Since most people already pay less than 25 percent of their gross income in taxes, the "Max Tax" is a scheme to give tax cuts to those in the upper brackets -- the rich.
Are there any serious reform plans?
Two ideas currently being pushed by Republicans -- the flat tax and the national sales tax -- would dramatically change the way the nation collects taxes. So far, the Republicans haven't been able to decide which of the two to back. So they have sponsored a series of debates around the country pitting the two ideas against each other. It's a good way to judge how the voters will react to either plan.
Don't we already pay sales tax?
Most states and some local governments tax retail sales and many services such as restaurant and hotel bills. Both state and federal governments tax some items such as gasoline, alcoholic beverages and cigarettes.
A national sales tax would put a federal tax on top of things the states were already taxing. In a variant widely used in Europe a "value-added tax" is imposed at every stage as raw materials are processed, assembled and distributed as finished goods. The VAT for European consumers is typically 17 percent.
So a $20,000 car subject to 17 percent VAT would cost $23,400. Wow! Would all prices go up like that?
Yes, but if you paid less income tax you might come out ahead.
Not if you were poor. The poor don't pay much income tax, but they have to eat just like the rich. They could end up paying more of their income in taxes.
They could. It would depend on whether some items -- like food and clothing -- were exempted from the tax. Of course, the more exemptions, the higher the rate would have to be to replace the $1.5 trillion a year the income tax raises.
