It's tax season again, and once again our elected representatives are manipulating the tax system in strange and mysterious ways. Most members of Congress will tell you that they are anti-tax, but that doesn't prevent them from writing new rules to reward major donors, encourage certain behaviors and promote favored policies. Over the past 12 years Congress has enacted 4,680 changes to the tax code, an average of more than one a day. Today the tax code runs to 73,950 pages, give or take a few. It is theoretically possible that Watson -- the IBM computer that won the Jeopardy challenge -- can remember 73,950 pages of tax rules, but that is surely beyond the capacity of any mortal human.
Critics complain about business tax breaks, and for sure there are a lot of them in those 73,950 pages, but the real culprits are you and me. The home-mortgage deduction, for example, costs Uncle Sam $70 billion a year, and 77 percent of the benefit goes to homeowners earning more than $100,000 a year.
But the really big one -- costing the government more than twice what the mortgage deduction costs -- is the healthcare deduction. Most working people get their health insurance through their jobs, which amounts to tax-exempt income.
Somewhere along the line the original purpose of taxes -- to fund the government -- got lost. Today we use the tax system to coerce people into doing what our elected representatives lack the courage to openly require. The Affordable Care Act, for example, uses the tax system to coerce individuals and businesses into buying into the new health-insurance system, Obamacare. This year companies with more than 100 full-time employees must offer coverage to full-timers or pay a punitive tax (in addition to all their other federal, state and local taxes). Full-time employees are defined as those working 30 hours a week on average. In 2016 it will apply to firms with 50 to 99 full-timers, and the coverage will be extended to their dependents.
Firms that fail to offer health insurance to at least 70 percent of full-time employees in 2015 will get socked for $2,084 for each full-timer less 80. In 2016 the required coverage jumps from 70 percent to 95 percent of full-time employees, and only 30 full-timers are exempt when calculating the tax. After that, the rules get even more complicated.
The fines -- excuse me, taxes -- are not just for businesses. The tax penalty for individuals going without health insurance in 2015 is $325 a person ($162.50 for each family member under 18), with a ceiling of $975. That, of course, is an over-simplification. Again, the rules are complex. But in effect, if you don't buy into the system, the IRS nails both you and your employer.
Or at least it's supposed to. While the IRS is inheriting this additional responsibility, it is reeling from yet another major cut in its budget. Some contend that Congress has slashed the IRS budget because IRS officials have denied tax-exempt status to conservative groups. Others suggest this latest cut is intended to undermine the ability of the IRS to identify and penalize those who fail to buy health insurance or provide it to their employees. We should stop playing games with the IRS and start funding the agency adequately to do its job.
Jerry Jasinowski, an economist and author, served as President of the National Association of Manufacturers for 14 years and later The Manufacturing Institute. Jerry is available for speaking engagements.