The Tax Reform Merry-Go-Round

Just about everyone with an opinion on politics and the economy believes the time is long overdue for a major overhaul of the tax code - everyone that is except the legislators in Congress who would have to do the overhauling and would probably rather get run over by a truck. Congress views tax reform the same way soldiers view land mines and with the same reason. They know how easy it is to set one off and the potential implications thereof.

To have any meaning and impact, serious tax reform would entail review and elimination, or at least significant adjustment, of an array of tax benefits that have accrued over the years making the tax code ever more complicated and draining needed revenues from Uncle Sam's coffers. Easy to say; not so easy to do.

The biggest tax dodge of all is the deduction for health insurance. Almost all working people get health insurance through their employers. It is a significant part of their pay that they do not pay taxes on. It would take a brave legislator to tamper with that.The next biggest item would have to be the home mortgage deduction. Rich people make out like bandits on their big first and second homes, but the vast majority of middle class workers also depend on it. Here, too, legislators who wish to remain in office must tread lightly.

And what about deductions for donations to charity? Who would take that away from the people? Not any politician who wishes to remain in office.

Picking on business doesn't get much easier. Two of the biggest business deductions are those for research and development and depreciation of capital investments. These do not benefit you and me directly but I personally believe these are absolutely vital to the vigor of our economy. We cannot compete with other nations on labor costs. We need to maintain our lead in innovation so we need lots of R&D and we also need to constantly update our capital equipment so we need attractive write-offs for such investments. We also want to encourage investment in advanced training of workers to close the skills gap. The public at large may not get too worked up about these sorts of deductions, but you can be sure businesses do. The politicians who depend on political contributions from business people - which is to say just about all of them - will get an earful if they start to trifle with tax provisions like that.

There is a lot to be said in favor of a simple tax code that everyone can understand, and without question we lose vast sums of revenue due to obscure tax provisions carefully designed to benefit specific people and companies. Our tax code has become so complex that we must employ legions of tax experts to help taxpayers - individuals and companies - make sure they pay no more than what they rightfully owe. This is a major diversion of resources that adds nothing to our productivity and national wealth.

But to clean up this mess without throwing the baby out with the bathwater would require the wisdom of Solomon, the brilliance of Einstein and the patience of Lincoln - qualities which are in short supply in the nation's capital today.

Lt. Gen. Clarence E. "Mac" McKnight, Jr., (USA-Ret) is the author of "From Pigeons to Tweets: A General Who Led Dramatic Change in Military Communications", published by The History Publishing Company.