Bottom Line Counts Down to Tax Day
Those who are yet to file their tax returns know full well that April 15 (Tax Day) is fast approaching. In the mad rush to complete the paperwork, little thought is likely given by many to broader tax issues that will affect their tax bill and how it is collected for years to come. Well, the early filers at the Bottom Line have some time on our hands to consider these weighty issues and we will be exploring them in daily posts leading up to the big day. In the days ahead the “Count Down to Tax Day” series will explore issues such as the revenue situation in the U.S.; new types of taxes being considered; what to do about the Bush tax cuts that are set to expire soon; and the need for, and prospects of, fundamental tax reform.
To get an idea of the potency of the tax issue, look no further than the heated debate following remarks this week from former Federal Reserve chairman, and CRFB board member, Paul Volcker that the U.S. should consider a value-added tax. The VAT, which is widely used in Europe, is getting a closer look in the U.S. Proponents say that it can raise revenue in an efficient way that doesn’t constrain economic growth; opponents call it a stealth tax that will grow the government.
It is becoming increasingly clear that our tax system is not keeping pace with a changing society and economy. The current tax code is complex and filled with exemptions and loopholes; it needs to be streamlined and modernized. As we seek to reduce the mounting federal debt to a sustainable level, reducing the growth of spending, of course, will be the priority, but revenue also will have to be part of the equation. But if thoughtful leaders cannot even mention the possibility of revenue alternatives without being attacked, how can we have a healthy and constructive debate on future tax policy?
Whether we like it or not, we must examine the revenue side and at least consider alternatives. On a related note, Morton Kondracke pitches a progressive consumption tax in Roll Call as an alternative to the VAT in addressing the widening fiscal gap. Taxing consumption could encourage savings while reducing the debt.
As the old saying goes, the only certain things in life are death and taxes; and we have about the same degree of fondness for both. Yet, just like ignoring the 1040 is not a good idea, refusing to explore the tax code and possible improvements could come back to haunt us. So, take a short break from the forms and check out the daily posts to put it all in perspective.