Obama Buries the Lead on Taxes

It took until the end of his remarks, but the president finally got to the issue that just about every American agrees on when it comes to taxes: They are way too complicated.

Today, President Barack Obama talked about the supposed tax cut for 95% of Americans.  I’ve heard estimates that range the savings from between $7 to $17 per month for taxpayers.  Obama calls this “broad and sweeping,” I don’t.  Then the president talked about small business.  Small businesses have actually gotten some tax relief under the president’s and Congressional action.

Then, there was discussion about tax credits for student borrowing and home buying.  The problem with attainability of higher education for the dwindling American middle class is not a tax issue, although the $2,500 tax credit for each of four years your kid is in school will help.  The problem is the explosion in tuition cost.  In the early 1990s, my tuition at a respectable state school in Ohio was around $5,000 per year.  That same state school is now $9,000 per year.

After extolling the virtue of the first-time home buyer $8,000 tax credit and “fiscal discipline,” the president got to the subject which enflames everyone from those who willingly pay their taxes to those who do everything in their power to avoid paying an extra red cent:

Finally, we need to simplify a monstrous tax code that is far too complicated for most Americans to understand, but just complicated enough for the insiders who know how to game the system.  So I’ve already started by asking Paul Volcker and my Economic Recovery Board to do a thorough review of how to simplify our tax code, and to report back to me by the end of this year.  It’s going to take time to undo the damage of years of carve-outs and loopholes.  But I want every American to know that we will rewrite the tax code so that it puts your interests over any special interests.  And we’ll make it easier, quicker and less expensive for you to file a return, so that April 15th is not a date that is approached with dread every year.

If the day ever comes when the tax code is re-written put “your interests over any special interests,” I’ll eat this text on a sheet of paper.  Here’s what the Washington record is on special interests in just the last nine months or so:

• $700 billion TARP bailout for banks, insurance companies and brokers
• Companies in receivership to the U.S. government operating like they always have – exorbitant executive pay and millions in bonuses for failure
• Special lending facilities from the Federal Reserve to the bad actors in the U.S. financial services sector – which has kept them from taking the unholy beating from the “free market” which they deserve
• $800 billion stimulus package that we wouldn’t have needed but for the recklessness of the financial services sector and the ignorance of the politicians we pay to oversee it
• The PPIP which takes the risk out of toxic assets for the mega investors who can afford to buy them and places that risk on the taxpayer
• Recent talk of a second TARP-like bailout package for banks, insurers and brokerages

Those points just cover one special interest group – financial services – and just some of the big giveaways.  The biggest giveaway has always been the U.S. tax code.  What Washington politician is going to stand up which industry that has lined their campaign’s pockets?  I’ll believe it when I see it.

I’m an average, middle class guy.  I was surprised to find that 60% of Americans now pay a tax preparer of some sort to do their taxes.  That’s insult to injury.  Not only do you pay your tax, you’ve got to go out of pocket to pay the tax.  My wife and I filed income tax returns with 4 separate authorities this year.  That’s too many.

My final point is this.  I don’t mind, for the most part, paying my taxes.  I do mind having to operate in a system that costs me money and lots of time to do so.  The real story about taxes in the U.S. is complexity.  Complexity is what allows the well-heeled to avoid taxes and therefore costs the government revenue.  Complexity is also unfair.  If you can afford to hire the right lobbyist who has the ear of the right Congressman or Senator, voila! Loophole.

I’ve always accepted the Democratic dogma that a flat tax or consumption-based tax would be regressive.  I’m beginning to rethink that position.