Have you read the U.S. Constitution recently, especially the part where We, the People, give Congress the power to levy and collect taxes?
There’s nothing in there about carving out special exemptions for certain individuals or groups; about using tax credits to achieve socially desirable outcomes, such as getting married and having children; or about doling out earmarks in an implicit exchange for campaign contributions.
How can we get Congress out of the tax-favor business?
We need new rules (a constitutional amendment), a new framework (independent commissions) or a new crop of lawmakers with the political will to look beyond the next election and solve the country’s fiscal problems.
First, some history. The Constitution grants Congress 18 enumerated powers (Article I, Section 8). The power to tax is No. 1. The power to borrow is No. 2. No. 18, the “necessary and proper clause,” empowers Congress to pass all laws that are necessary and proper to do the 17 other things it’s authorized to do. It pretty much gives Congress carte blanche.
The 16th amendment, ratified in 1913, gave us the income tax and gave Congress the power to run wild.
“The problems stem from allowing Congress to tax incomes from whatever source,” says Randy Barnett, professor of constitutional law at Georgetown University Law Center in Washington. The 16th amendment represented “a major change in the federal government’s relationship to the people” and should be repealed.
Efforts at tax simplification, such as the implementation of two flat rates (15 percent and 28 percent) and the elimination of many loopholes in 1986, tend to be short-lived.
Why? For the simple reason that Congress likes using the tax code to dispense favors. Lawmakers may disagree over whether political spending by corporations constitutes free speech (the Supreme Court says it does), but they let money speak to them loud and clear. We must stop them before they kill (the economy) again.
A constitutional amendment is probably the most difficult remedy, but also the most enduring. Congress can propose amendments to the Constitution on a two-thirds vote by both Houses and must call a constitutional convention on a petition from two-thirds of the state legislatures (Article 5).
The chances of lawmakers depriving themselves of their tax-favor status are about as good as their voting themselves out of office by enacting term limits.
That leaves state legislatures to take the initiative. Starting in 1975, the National Taxpayers Union came up two states short in an attempt to use Article 5 to pass a balanced budget amendment, according to Peter Sepp, vice president for communications at Washington’s NTU.
With congressional approval ratings near all-time lows, maybe the public is fired up enough to compel local legislators to act.
How would an amendment be framed to give Congress the flexibility to set, say, two flat rates yet not enough wiggle room to write targeted tax breaks into the tax code, which, by the way, should be scrapped?
I asked Sepp to give it a try.
“Any amendment would have to reaffirm certain uniformity provisions of tax law,” he says. “One starting point for discussion might be, ‘Congress may extend no credit, deduction, or other distinction of law regarding tax rates, filing status or type of economic or business activity unless it is applicable to all taxpayers.’”
Any change to the rates would require a supermajority (two-thirds) vote of Congress, he says.
Outsource Tax Policy
A second possibility, which avoids the messy problem of constitutional tinkering, is to outsource tax policy.
Martin Sullivan, an economist and contributing editor at Tax Analysts, a publisher in Falls Church, Virginia, has been promoting, or dreaming about, such an idea for a while.
“What would it be like if the government conducted tax policy as it does monetary policy?” Sullivan says.
In the early 20th century, the nation decided to take matters of money and interest rates out of the hands of politicians and delegate them to the Federal Reserve, he says. In the same way, “we need to change the institutional framework for fiscal policy.”
What we need is some kind of permanent commission that is independent of government, determines fiscal goals, sets hard targets and has some teeth -- unlike President Barack Obama’s fiscal commission, created by executive order, which can recommend while Congress can ignore.
Blind, Not Deaf
In January, the Senate voted down a proposal to create a special debt commission whose recommendations would be guaranteed an up or down floor vote. That doesn’t bode well for outsourcing.
Unless Congress gets serious about entitlement, tax and spending reform, there will be no alternative except to delegate that authority. If they won’t do it, We, the People, will have to show them the way or show them the door.
The public is sick and tired of politicians preaching tax increases and practicing tax evasion. We’re fed up with the 67,000-page loophole-ridden tax code with its egregious exemptions and deductions.
Did you know that there’s a standard tax deduction for the blind but not the deaf? Or what about the deduction for work uniforms, except if you’re a painter wearing white overalls? Imagine how deaf painters must feel.
E Pluribus Unum
Uniformity should be a guiding principle of any tax reform, along with broadening the base and lowering the rates. “Congress has exactly the opposite propensity,” Sullivan says. “They want to find the most politically advantageous interest groups and leave the rest of us behind.”
It took a Tea Party in Boston in 1773 to put the British on notice. Maybe it will take the modern day equivalent to get Washington’s attention.
(Caroline Baum, author of “Just What I Said,” is a Bloomberg News columnist. The opinions expressed are her own.)
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