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America’s political class opposes tax reform for selfish reasons

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A seasonal foreboding again settles on the Republic. H & R Block, which prepares the income tax forms of about one in seven taxpayers, is broadcasting television commercials featuring the ingeniously cryptic slogan, "We know. Do you?"

Those four words capture the ominous mood of March in this country. In America, home of the free and the land of due process, most taxpayers find it impossible to know if they are complying with tax law.As a taxpayer wrote to the commissioner of Inland Revenue (as it then was) in March 1938: "I am enclosing my income tax return for the calendar year 1937, together with my check for $15,000. I am wholly unable to figure out the amount of the tax." And figuring tax obligations was relatively simple when President Franklin Roosevelt wrote that.

In the 1960s the "H & R Block Income Tax Guide" was 196 pages long. In 1988 it was 317 pages. By 1998 it was 574. In 1997, 45 daring tax professionals participated in Money magazine's annual experiment, each one preparing the magazine's sample tax return. Result? Forty-five different bottom lines. Fewer than one in four came within $1,000 of the correct answer.

Also in 1997, a Congress controlled by Republicans, who profess to favor tax simplification, passed legislation with the Orwellian title "Taxpayer Relief Act." It added to the tax code 800 amendments, 290 new sections and 36 retroactive provisions. No wonder when you drive downtown or to a mall you are four times more apt to see an H & R Block office than a Gap store.

These depressing facts are supplied by Amity Shlaes of The Wall Street Journal. Her scalding new book, "The Greedy Hand: How Taxes Drive Americans Crazy and What to Do about It," makes clear that no matter how indignant you are about the tax code, you are not keeping up with the multiplying reasons for indignation. Consider the experience of John and Barbara Zwynenburg.

When in December 1988 their son was killed in the terrorist bombing of Pan Am Flight 103 over Lockerbie, Scotland, they expected some sort of settlement from Pan Am. But before receiving anything from Pan Am they heard from the IRS, which demanded $6 million -- its estimate of its share of the coming settlement. (Which eventually was for thousands, not millions.)

Such anecdotes usefully get the public's dander up, but they concern episodes less injurious to the public than are the broad consequences of tax policies.

Shlaes shows how estate taxes kill family businesses, 70 percent of which do not make it from the founding generation to the next. The family that owns, say, a Burger King franchise, which is valuable but does not generate a large cash flow, may have to sell it to pay the tax on the value of it.

Job creation is hurt by the payroll tax. Just the visible half paid by the teenager behind the McDonald's counter (the half the employer pays does not show up on a worker's pay stub) is at a higher rate (7.65 percent) than the rate Congress imposed on millionaires (7 percent) when it inaugurated the income tax in 1913.

High property taxes intended to fund good schools drive away affluent homeowners, depress property values and hurt schools. The reduction (this is effectively a tax) of Social Security benefits to seniors who earn "too much" idles vigorous, productive workers in a time of labor scarcity. And so it goes.

Shlaes twice cites former Treasury Secretary William Simon's acerbic remark that America should have a tax system that looks as though someone designed it on purpose. But Shlaes and Simon are political sophisticates who know that the metastasizing tax code (it is twice the length of "War and Peace" and the code regulations are more than four times longer than the code) actually embodies the purposes of the political class.

For that class, amending the tax code amounts to appropriating by other means. Every wrinkle in the code was put there to please some constituency, which becomes attentive to the defense -- if not the enlargement -- of the favor.

Which is why radical tax simplification would not be merely a step toward a more rational use of economic resources. It would also be a political reform, restraining the political class and crippling the coterie of lawyers and lobbyists who are parasitic off an ever-more-baroque tax code.

Which is why simplification is one of two reforms (the other is term limits) the political class opposes in spite of their popularity. The limits of that class's desire to please the public are reached when what pleases the public limits that class.

Washington Post Writers Group