The Deep Problem with Tax Policy: No One Understands It

10/13/2017 02:55 pm ET Updated Oct 16, 2017

As America once again considers tax reform, with President Trump promising the greatest tax cut ever, the nation faces many choices. We could attempt to shore up the individual income tax, or move to a more consumption-based system. We could lower all rates, or just raise the standard deduction. We could cut the payroll tax instead of or in addition to the income tax. We could flatten tax rates or make them more progressive. We could reform and make corporate taxes more sensible, or even eliminate them altogether. And so on: there are many options.

Over such issues, involving the substance of tax reform, there is reasonable room to debate. But there is little room to debate the deeper problems arising because of how tax laws are written, expressed, and understood. We are approaching if we have not already arrived at a crisis in our democracy because of the form of our tax laws.

Simply put, the overwhelming majority of Americans simply cannot understand the basic details of the tax system governing them. This leaves tax policy to get developed and implemented by politicians, influenced by rich and powerful patrons and interest groups, loosely informed by experts, all operating behind a steep wall of complexity. Even if we assume that all expertise in tax is promulgated in good faith -- free of any corrupting influence or self-interest -- it is easy enough to find experts on all sides of any given issue, to pick and choose among expert analysis or even within the work of individual experts, to misrepresent, distort and take matters out of context. The media itself struggles to see what is happening amidst the fog of tax. No one is left to watch the watchdogs of tax policy, because no one can understand what is going on.

Therein lies a considerable rub. The American people have turned over the control of the tax system, which takes on average about one-third of their incomes, to others. Is it really any surprise that these others -- politicians who need and want money, the rich who can afford both to figure it all out and to pay to get politicians to do their bidding -- have exercised their unchecked power in their own self-interests? Such is human nature. Without accountability, the rich and powerful have been able to create a tax system that highly favors them, without the people being able to figure out the tricks. The system is rigged. The complexity of policy is a key ingredient of the rigging.

This is why I, an aging law professor who has tried to reach out to a wider audience over the years, decided to start a 501(c)(3), The People’s Tax Page, together with a small band of committed students. We are a nonpartisan group, dedicated to explaining basic concepts of tax and public finance to as many people as possible. We are making cartoons and short videos featuring cute children (disclaimer: a couple of the cute children are mine . . .). Our first “season” explains how the rich, those with wealth, can easily avoid paying any tax using the three steps of what I have called Tax Planning 101: Buy, borrow, die. Here’s our short animation that explains this concept:

Because the rich don’t have to pay any taxes, this leaves the not-rich to pay lots of taxes. Here’s another video explaining how this is possible:

We conclude by explaining how a tax on spending, not on work and savings, would correct the inequity whereby the not-rich, and not the rich, are burdened by large tax loads. This video will be released soon.

[Update: Our third animation has now been released. See the top of this post.]

In our second “season,” we are turning to some common political tricks with tax -- how the corporate tax is a bit of a trick (because businesses pass it on), how “repatriation” or the quest to bring “trillions” of dollars back home from overseas, is another trick (because the money is already “here”), and how hidden taxes, as on consumer products such as gasoline, alcohol, cigarettes, cell phones, cable television and more conspire to add to the largely invisible assault on the working people. We hope later to develop content on how taxes affect household decisions, such as to marry, work, or have children, and more.

In all of this, we at the People’s Tax Page do not presume to have any ultimate answers. We aim, rather, to help the people ask better questions. As a matter of basic personal living advice, I tell my students all the time that no one should turn her money over to any adviser without being able to keep close and accurate tabs on what that adviser is doing with her money: just ask Bernie Madoff’s many victims.

When an entire populace gives control over its money to obscure processes dominated by money and conducted in secrecy, democracy is in danger. The rich will get richer while the not-rich, burdened by taxes they cannot understand or even see, continue to struggle without knowing the deeper causes of their problems. The people lurch from party to party, candidate to candidate, each one promising something different, some way out of the working class pain. Yet when it comes time to tax reform, nothing ever really happens to change the basic dynamic. The pain endures.

The People have the power in a democracy. But power without knowledge is a weak tool. The People’s Tax Page aims to restore some power to the people by giving them more knowledge about tax. Please visit us, and help us to help the people ... before things get worse.

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