Taxing Time; D. Bandow

For believers in limited government, then, there is probably no more important task than constraining the growth of government spending, and that is most achievable by reversing the increase in taxes. What is needed is a threefold strategy of tax reform: reduction, accountability, and simplification. Most important, Congress should lighten the tax burden, and the best means of doing so is to cut income tax rates across the board. The reason is simple-taxpayers deserve re lief. Mr. Bandow, a nationally syndicated columnist, is a senior fellow at the Cato Institute and the author and editor of several books, including Tripwire: Korea and U.S. Foreign Policy in a Changed World. by Doug Handow According to a recent Harris poll, 30 per cent of Americans say that their taxes are "much too high." Another 40 percent believe they are "somewhat too high." And this huge majority is right. At the beginning of the century, reports the Tax Foundation, Tax Freedom Day came on January 31. It bounced around March and April during the 1940s,gradually moved to the end of April by the 1970s, hit May the following decade, only to recede for a time, before starting its steady increase in 1993.

In many states the burden is even higher. New Yorkers work for government until May 23. Residents of Connecticut start earning money for themselves only a couple of days earlier. The luckiest taxpayers live in Louisi ana, where Tax Freedom Day comes on April 26. Taxes are the largest single component of the average American's budget. People spend nearly two hours out of an eight-hour day to pay just Uncle Sam's levies. Another hour of labor is consumed by state and local taxes. Only housing, at an hour and twenty minutes, comes close to the tax burden. (The costs of deficit spending and regulation are largely hidden from view, raising prices and interest rates.) Of course, defenders of the expansive and expensive state argue that Americans receive a good return on their money. But today's welfare/warfare state operates primarily for the benefit of select interest groups rather than the general public. Nearly one-quarter of 419 420 THE FREEMAN • JULY 1997 every tax dollar goes to Social Security, Uncle Sam's faltering retirement system that is de livering an increasingly negative return while heading toward fiscal collapse.

One-fifth of the federal tax dollar covers health care, particularly Medicare and Med icaid. These programs are not only unneces sarily expensive, but have fueled price infla tion in the private sector. Neither is sustainable over the long term. Another fif teen cents goes to interest, the price of past federal extravagance. The biggest program that is truly a federal responsibility is national defense, which ac counts for fifteen cents. But much of that goes to protecting other countries, particularly America's populous and prosperous allies. Beyond that are a potpourri of programs that either aren't government's responsibility or are more expensive than need be. Some value for the tax dollar! The fairest means to reduce the tax burden would be to slash tax rates for all Americans. Given a decade worth of tax hikes after the Reagan Administration's early tax cuts, the reductions should be substantial-a third at least. Other good ideas include reducing capital gains and estate levies, which per verselypunish the capital accumulation that is necessary for economic growth.

Reductions are not enough, however, for the 1980s proved that the pressure to hike leviesis almostirresistible.Thus, the taxburden needs to be made more visibleto people. For instance, withholding, under which workers never see their earnings grabbed by government, should be eliminated. If taxpay ers had to scramble to come up with the thousands of dollars necessary to satisfy Un cle Sam, they would realize just what a burden taxation had become. At the very least, the current withholding system should be re placed by a system of quarterly tax payments like that now used by the self-employed. In either case, workers would receive their full income, and only then pay the IRS. At the same time companies should volun tarily implement the Right to Know Payroll as proposed by Michigan's Mackinac Center. For each employee firmswould list the overall payroll benefit level and subtract expenses that the employee never sees (payroll taxes, administrative costs), yielding the traditional gross pay number. If politicians won't volun tarily subject their handiwork to public scru tiny, business should help expose it.

Moreover, election day should be moved to the first Tuesday after the second Monday of April. Then taxpayers would see how much of their income had been seized by govern ment before voting. They would feel the real cost of the supposed benefits being provided by spendthrift politicians, enabling them to make a truly informed electoral choice. In contrast, elections nowfall seven months after tax day. Finally, Congress should move toward ei ther a flat income tax or a national sales tax. The first would greatly simplify the task of figuring out what was due. The second would essentially eliminate the individual compli ance burden, along with intrusive IRS en forcement practices. The latter is particularly important. The income tax imposes more than a financial burden. A People magazine poll found that the most frightening words Americans imag ined hearing over the phone were "This is the IRS calling." Evidence continues to emerge on how various presidents have used the tax agency against their political enemies. Only slightlyless obnoxious are the 1500-plus(cur rently admitted) instances of freelance snoop ing. A free people should not live in fear of virtually unaccountable bureaucrats who can delve into the most intimate details of their finances.

Indeed, Dan Mitchell of the Heritage Foundation has come up with 577,951,692,634 reasons for tax reform. He points to the 136,000 federal employees who enforce the tax law and the $13.7billion they spend doing so. There are 8 billion pages of forms and instructions issued by the IRS, 5.5 million words in the tax code, and 33 million penalty notices sent out annually. There are 8.5 mil lion wrong answers given to taxpayers calling the IRS for help. There's the $31 billion spent and to be spent by the IRS to modernize its computer system. The $157 billion in compli ance costs for individuals and businesses. And much, much more.