Backbone in Intelligent Design (of the tax code)

No, I do not want to get into the discussion on intelligent design in relation to evolution. But it seems that another area where intelligent design could be helpful would be in the tax code. Since the last major overhaul of the federal code (1986) we have allowed the code to be brought back to complexity. That is especially true for something called the Alternative Minimum Tax (or AMT). The AMT is one of those idiotic ideas that could only be thought of in Washington. The "logic" goes like this. We will create two tax codes - the first is the basic structure but if we think you do not pay enough tax under that one then we will create a second code with slightly higher rates and you will be taxed under that one. Instead of having the integrity to create a tax code with all the provisions in the right place - our lawmakers created a sort of code. The theory behind this provision was that if your use of many of the most popular provisions in the code was too vigorous - then we will tax you more. But of course, that is not the way the thing has worked. It was originally designed for the mythical taxpayer who is agressive in using "tax preferences" but as the code has continued it increasingly is attacking more and more taxpayers.

The president's tax reform panel looked at the AMT and declared it was bad. So they set out to solve the problem by eliminating it. If the proposal is adopted, it will require some adjustments. For example, the deduction of state and local taxes will go away. So will part of the deduction for mortgage interest (based on a calculation of what most people pay for housing). In both cases the panel is using some of the language of many tax theorists - why should we subsidize local government taxes or huge purchases of housing? The panel also establishes a 1% floor on charitable giving but moves it above the line. Thus, in order to qualify your charitable giving, you have to give at least 1% of your income to charitable causes but then the provision applies to all taxpayers. All of those changes yield some slight changes in rates (including some further reductions in the rate for capital income) and the elimination of the AMT. In my mind, that is a pretty good tradeoff. Sure there will be some people who whine about a lot of the provisions but that is a pretty fair balance.

The president's staff announced today however that they would take a year to build support for the ideas in the plan before trying to advance it. One wonders whether this will be the same team that has done such a good job of building support for the policy in Iraq and the same team that did such a wonderful job of building support for privitization of social security accounts. The president, at the beginning of this term, aruged that he had built up some political capital and that it was his intention to spend it to achieve his goals. But in the cases of Iraq and Social Security he has let the other side define the terms of the debate. Based on the first year of his second term, he seems to have been very good at spending that capital without any real or even apparent investment. That makes his announcement on the tax reform panel this morning look like a strategic retreat. That is a real disappointment.