Why is it so complicated to get simple taxes?

At the end of each year, I go through a ritual where I pay property taxes and estimated federal and state income taxes. Property taxes in the state are pretty simple - based on a formula - 1% of market value and then 2% a year. Income taxes are not. We tried in 1986 to simplify the income tax and did a reasonable job of it but it now seems obvious that the time has come to cut away part of the thicket.

So where is all the thicket? In my view the most likely is the Alternative Minimum Tax or the AMT. The AMT was created to assure that some very small portion of the taxpayers paid their fair share. So, after you have done all of your calculations on deductions and credits you then do a second calculation to discover whether you paid your share. If not, then you get to add in this extra amount. What has happened in the last several years is the AMT has begun to bite with a vengeance capturing more and more people in its net.

Adam Smith warned about the potential perils of an income tax in the Wealth of Nations. But because it worked well as a revenue source in the 20th century there is strong support for keeping it. There is a tension here between fairness and simplicity. If you take into account the manifold variations in lifestyle and circumstance you will have a fair system but it won't be simple. On the other hand if you want something simple - perhaps a straight percentage tax on all income - it can be simple but does it stay fair?

So how do you solve this question? In my mind, the President's commission on tax reform came pretty close. They zapped the AMT in exchange for lowered rates and for other changes in the code which some people think are hallowed ground. The proposal would suggest that you can only deduct mortgage interest for something like the median house price in your area. Thus, the code would become neutral on housing. If you wanted the 40 room neo-gothic mansion - and had to borrow tons of dough for it you would not get subsidized. You would get a credit for the mortgage only to the extent that it does not exceed the regional average cost of housing. The proposal also takes a whack at charitable contributions by putting a floor on them and then move the item above the line so that all taxpayers could take advantage of that provision. Both of those changes are likely to get a lot of traditional interest groups very grumpy. And the "law of the few" could make this fight a very tough one. When a benefit is provided to society that is diffuse at the expense of a benefit that is concentrated - the concentrated one often wins. That is based on the notion that most people will not see or think about a diffuse benefit but those who hold the concentrated one will scream at any variation in the way they are compensated. Unfortunately, as we learned in 1986 real tax reform depends on a good mix of leadership and commitment. Which Jeff Birnbaum and Alan Murray so brilliantly demonstrated in Showdown at Gucci Gulch. In this era, although the changes would help us all, there may not be the same level of either leadership or commitment.