We should strive for a tax system designed ‘on purpose’
Despite their recent problems, I still fly Southwest Airlines. My credit card is linked to their mileage program and I have accumulated enough miles to get a companion pass for my wife.
This pass allows her to accompany me for $5.60 per flight segment. My ability to keep the pass depends on miles earned from my credit card. So does my “A-list” status.
I charge anything that does not add a fee for the use of the card. This includes water, electric and gas service for my house. Family cellphone service, health club membership, and other monthly charges go on the card.
Each month, I pay the full balance to avoid interest charges. This seems prudent. After all, I agreed to the expenses, so I should pay the card. And why add to my costs with more interest.
Congress has a different view. It is again debating the so-called “debt limit.” This limit must be raised to pay the bills that the government, by action of Congress, has already incurred.
It amounts to the simple decision to pay the bills. Not future bills. Past bills. Money spent because Congress used its appropriations authority.
The “will they or won’t they” nonsense will likely cause future borrowing costs to increase. This will raise the deficit.
The inability of our Congress to function will probably also cause your taxes to go up. Middle class? Higher taxes. Upper class? Higher taxes.
Why is this? It is because the 2017 tax cuts, which were substantial, sunset at the end of 2025. Congress could decide to extend them with the president’s consent.
Which Congress? The one elected in 2024. Which president? The one elected in 2024. What could possibly go wrong?
The debt limit nonsense suggests that we didn’t get a very good group of leaders in 2022. Should we worry about the next group?
I have often used a quote from former Treasury Secretary William Simon: “The nation should have a tax system that looks like someone designed it on purpose.”
Mr. Simon served from 1974 to 1977. His concerns are now almost 50 years old. This does not seem to be something that we get right.
Pending proposals to cut funding for the IRS, abolish the IRS, replace the income tax with a consumption tax are simply not the work of serious people.
The clock is ticking on significant changes to the tax system that will just happen due to inaction. Our elected leaders fiddle while Rome burns.
This is, of course, our fault, not that of the elected leaders. I can’t think of one of 537 that has done anything shocking in relation to what we saw when they ran for office.
We should not revert to pre2018 law by inaction, nor should we just continue all of the 2017 changes.
We should try to design a tax system on purpose. Why start now, you may ask? We have actually had bipartisan participation in tax legislation in the past.
We have also had legislative committee reports that explained the reasons for particular tax legislation. That no longer happens.
Designed on purpose does not mean we all agree. Fair to me does not mean fair to thee. We’re already several years late in starting work toward a reasonable replacement when the 2017 changes sunset.
On Dec. 31, 2025, 23 individual tax provisions will expire. Rates will be higher, a significant number will again pay the alternative minimum tax, and the 20% deduction for business income will go away.
Dependent deductions will come back, but the standard deduction will go down. The $10,000 limit on tax deductions will expire.
A selling point of the 2017 legislation is that “all” individuals benefitted. That was not true, but it was mostly true. The expiration at the end of 2025 means most will pay more tax.
Raising taxes may be part of the budget deficit solution. But it should happen by design, not by inaction.
We elected these people. And the chickens have come home to roost. Coach Bear Bryant said, “When you make a mistake, there are only three things you should ever do about it. Admit it, learn from it and don’t repeat it.”