Rollback the Tax to 1964
Tax cuts are mantra to a large portion of the US electorate. Giving tax cuts to “job creators,” those for whom such cuts will provide no practical amount of addition to an already lavish lifestyle, remain the most popular form of perceived stimulus to the US economy and have been promoted election after election since Ronald Reagan was president in the 80’s. Legend has it that Mr. Reagan was convinced of the effectiveness of the tax cut idea by Arthur Laffer over lunch when Laffer explained graphically on the back of a napkin. This was an appealing myopic application of Keynesian economic principles which became known as “supply side economics” or “Reaganomics.”
In support of the functionality of this theory, proponents often cite the effects of the “Kennedy Tax Cuts” passed by congress, signed by the President in 1963 and implemented in calendar 1964 shortly after Kennedy was assassinated. Indeed, the economy experienced a relative boom during the following years with rising employment and federal revenues rising much more sharply than even the most optimistic had originally expected.
Check out the 1964 forms and instructions here:
See also the wikipedia description of the 1964 reform act here:
The country prospered during the administration of President Lyndon Johnson who prosecuted the war in Viet Nam and who, with a friendly congress, presided over a “War on Poverty” funded largely by these increased revenues and “large” budget deficits. In hindsight, these deficits were not paltry in comparison to those that followed the implementation of ‘supply side” in the 80’s.
Of course, economics is not so simple that it can be summarized on the back of a napkin or predicted based upon increasing or decreasing a single factor. Many factors led to the boom of the late ‘60’s, not the least of which was wartime production and the space program that was in full bloom.
Complexity of the current income tax law is one of the reasons it is so unpopular. Do a web search for “Internal Revenue Code complexity” and you’ll get numerous articles from academia, legal, accounting and governmental sources as well as plenty of amateur and/or crackpot authors. And these articles extend back as far as the 1940’s and beyond. The shear volume of the internal revenue code is as good a measure as any and is cited more often than any other. In 1965 the IRC and Regs comprised over 3.5 million words. By now this total has more than quadrupled.
In my opinion, Owing largely to the use of computers, congress has made rules that require the use of same to implement numerous phase-out and phase in rules, dependent variables and such so that simultaneous equations are necessary to arrive at a tax calculation. Because we have these devices and have become adept at using them the law was changed to give the illusion of lower tax rates while attempting still to get enough revenue by making obscure provisions more so and hiding the way taxes are assessed through the smokescreen of complexity misnamed “simplification.” This made simple pencil and paper form completion of tax returns is often totally impractical. The only thing actually simplified was the number of lines on the rate schedule, and this unfortunately, was not really a significant source of complexity.
I am a retired CPA. As a junion accountant at the Miami, Florida office of Price Waterhouse in 1971, although I was primarily an auditor, I prepared and assisted in preparing a number of tax returns. It was the firm’s practice at that time to prepare its client’s returns in pencil, which were then reviewed by senior tax specialists. Many of these returns were considered quite complex at the time, but the law was such that a desktop adding machine and a yellow pad a pencil and eraser, were adequate tools for preparation of these returns. Once the return had passed the multiple levels of review and approval, the penciled in form was simply copied on a Xerox machine to be present to the client and filed by mail. (We had to use very good penmentship.) This would be impossible today.
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While many solutions to tax complexity have been proposed, and every president over the last 50 years has proposed simplifying the law, their efforts have been stifled by political influences we are all familiar with. Proposals such as these have no chance of passage unless they benefit monied interests and lawyers. In addition, wholesale changes to large vital systems that have evolved over time, are doomed to fail.
While the law becomes more and more complex, the IRS consistently lags behind. The IRS can’t easily upgrade its computer systems because the system is so large that a wholesale upgrade would take many years and the cost would be prohibitive. Additionally the current rate of technological change the system would be obsolete well before it was implemented. The implementation itself would no doubt be accompanied by snafus fits and starts much like every such major upgrade in every public and private entity. But for the IRS such snafus would be major bad news and further degrade its credibility.
For this and other reasons, they are loath to approach the problem. As long a serial tax cuts give rise to rampant austerity, there is not chance they can do anything about the problems. They actually are better off looking the other way, collect a paycheck and go home at 4:30 every day.
I propose, therefore, as an alternative to passing new reform legislation, establish a new set of tax laws and require computer upgrades to large systems, that congress take a simpler approach. Return us to a tax law that everyone seems to agree worked pretty well. I propose that congress roll back the tax law to the law that existed in 1964, modified only by indexing the law appropriately for inflation and building into it such an inflation provision permanently. I call it #ROLLBACK64.
Of course, case law that has evolved relating to 1964 and prior will be honored, but cases based upon subsequent law might be largely irrelevant. Certain subsequent laws that gave rise to permanent economic changes not directly related to tax filing will be grandfathered, such as those relating to IRA’s and 401K plans among others. As it did previously the law would encourage the corporate adoption of defined benefit plans and require them to be funded on a timely basis while eliminating the IRA, 401K fraud.
Additionally, to reduce fraud, taxpayers will be issued IRS id numbers and passwords that will be unused for any purpose other than tax filings.
I invite comments and suggestions. Any implicit suggestion that I have thoroughly thought this idea through would be mistaken. Its a radical idea that is meant sort of ‘tongue-in-cheek,’ ……….but not entirely. ;-)