Visions of a better income tax system

April 16, 2006|By DUSTY HORWITT

WASHINGTON -- Taxes are due Tuesday in Maryland, and they may be lower for some because of those heralded tax breaks for lower- and middle-income Americans. But tax cuts for those of modest means will do little more than make us dizzy.

I know, because it happened to me. Late on April 14 last year, somewhere among federal Form 1040, Maryland Form 502, California Form 540 NR and a blizzard of worksheets and schedules, I began to have visions.

Instead of deductions for student loan interest and tuition and fees (see Form 1040 instructions, Pages 28 and 29, and California student loan interest deduction worksheets, federal Form 1040 tuition and fees deduction worksheet, Publication 970 and federal Forms 2555, 2555-EZ and 4563, if applicable), I dreamed that we paid enough in taxes so that we could invest in affordable education for every American.

Instead of deductions for teacher expenses (see Form 1040 instructions, Page 26, and TeleTax Topic 458, plus applicable exceptions for excludable U.S. Series EE and I Savings Bond interest from Form 8815 and others), I imagined that we paid enough in taxes so that teachers could make a good salary and have adequate supplies.

Instead of deductions for health savings accounts, self-employed health insurance and itemized deductions for medical and dental expenses (see Form 1040 instructions, Pages 29 and 30, and A-1, Form 8889, Schedule SE, Publication 535, the Self-Employed Health Insurance Deduction Worksheet and others), I envisioned that we paid enough in taxes to fund a national health care system that covered every American.

But my daydreaming ended with the cold reality that we've become addicted to tax cuts.

Over the years, cutting government investment has become so popular that even our best-intentioned leaders can often do little more than send our problems back to us in the form of meager, ever-more-complicated tax breaks.

Tax rates ought to be modest for people with modest incomes. But at a certain point, tax cuts don't work for middle-income individuals simply because most of us don't owe much in taxes to begin with.

Last year, for example, deductions for student loan interest, moving expenses and self-employed income saved me $525 in federal taxes, $167.18 in Maryland and $41.32 in California. That's enough to pay my rent for more than half a month. And if my tax breaks had been five times as great? Well, that's about three months of rent, not the type of savings that would go very far when it comes to paying for college or health insurance.

And why isn't our government adequately funding important programs such as education and health care? As New York Times reporter David Cay Johnston wrote in an op-ed for the San Francisco Chronicle last year, a significant reason is that tax rates for corporations and the wealthiest Americans have been falling.

Without a significant contribution from our wealthiest citizens, most Americans will lack the same opportunities to succeed that most wealthy Americans have gained in large part by birth and luck.

Even supposedly self-made Americans such as Bill Gates generally receive a lot of help. According to Gates biographers Stephen Manes and Paul Andrews, Mr. Gates was born into a family whose wealth allowed him to attend an exclusive private school in Seattle, where he was almost certainly one of a handful of children who had regular access to computers at the dawn of the computer age. The authors also noted that Mr. Gates learned to program in a language called BASIC that was designed in 1963 at Dartmouth College under a federal grant.

Additional tax cuts will likely make it harder for our government to make such grants while making our tax code even more complex. Instead of more tax breaks, it's time for a tax system that is less confusing and fairer.

Dusty Horwitt is an analyst for a nonprofit research group who lives in Washington. His e-mail is

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