First published 1990 by M.E. Sharpe
Published 2015 by Routledge
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Library of Congress Cataloging-in-Publication Data
Minarik, Joseph J., 1949
Making Americas budget policy from the 1980s to the 1990s / by Joseph J. Minarik.
p. cm.
ISBN 0873325737-ISBN 0873326210 (pbk.-
1. BudgetUnited States. 2. TaxationUnited States. 3. Budget deficitsUnited States. I. Title.
HJ2051.M56 1990
353.00722dc20
8927503
CIP
ISBN 13: 9780873326216 (pbk)
ISBN 13: 9780873325738 (hbk)
Senator Bill Bradley
This book describes the last five years of what was a long journey for me.
In 1967, after I signed my first contract as a professional basketball player, an attorney asked me, Do you want to take your pay as salary, as deferred compensation, as fringe benefits, or what? I said, I dont know. I just want to be paid well for doing something I love to do. He replied, Its not that simple.
That was my first contact with the complexity of the federal income tax code.
Then in the mid-1970s, I read some articles by Stanley Surrey, a law professor at Harvard, who had been at the Treasury Department in the early 1960s when President Kennedy proposed his historic tax cuts which (though no one remembers today- included a substantial broadening of the tax base along with a reduction of tax rates. I was shocked that the tax rates could go as low as President Kennedy proposed if we just closed some loopholes.
So, my personal involvement began with the introduction of the Bradley-Gephardt Fair Tax Act back in 1982. There followed the introduction of the so-called Kemp-Kasten bill in the House of Representatives; then Treasury I, with President Reagans strong commitment to tax reform; then Treasury II, proposed by the president to the Congress; and then the Tax Reform Act of 1986, which so surprisingly became law.
There are, in my view, three basic rationales for tax reform. There is an economic rationale, there is a cultural rationale, and there is a political rationale.
The economic rationale is very simple. If you want long-term, stable, noninflationary economic growth, you need two things. The first is an awareness of the world trading and financial system. The second is the most efficient allocation of resources domestically.
The question is then posed: Which is the more efficient allocator of resources? Is it the Ways and Means Committee and the Finance Committee, or is it the free market? I believe it is the free market. In the past, the tax code was a barrier between the investor and the ultimate investment. Tax reform removes that barrier so that capital is deployed in the most economically efficient way, which will not only generate jobs and wealth, but also enhance our comparative advantage internationally.
That is the economic rationale for tax reform. Succinctly put, the rationale is to invest money to make money, not to lose it for tax purposes. But there is another rationale that I call the cultural rationale.
I think that any taxpayer in this country could express the cultural rationale for tax reform. It is a frustration and an anger with the tax law. I remember a few years ago when I appeared on a call-in show in New Jersey. A caller said, You know, I really like that tax proposal you have made. I asked, Why? He said, I pay an effective tax rate of 38 percent, and my next-door neighbor, who makes the same income I do, pays an effective tax rate of 6 percent. He thinks that I am stupid because I dont spend all my time trying to figure out how I can lose money to pay less taxes. But, he said, I am a chemist. I like doing what I do bestworking in the laboratory. And with this tax reform, I will be able to do that and my neighbor will have to pay his fair share.
The cultural rationale for tax reform is that people with equal incomes should pay equal tax. Just a few facts convey that meaning. The first fact: In the years just preceding tax reform, the effective tax rate paid by many people who made more than $1 million in this country was about 17 percent. This is what they actually paid. Many middle-income families paid more than that.
The second fact: In 1969, there were 10,000 tax shelter cases in some stage of audit or litigation. The Commissioner of the Internal Revenue Service told the Congress that, in 1985, there were 263,000 tax shelter cases in some stage of audit or litigation.
The third fact: In 1967, the value of all tax loopholes was about $36 billion. By 1986, the value of all loopholes had grown to over $400 billion.
I was on a dais in New Jersey in 1984, seated next to an executive of a major corporation, who said to me during the salad, You know, Senator, I have a problem with my son. For a politician, that is what I call a threshold question: Do you follow up on it or do you leave it? I was up for reelection, so I followed up on it.
He said, My son is twenty-seven years old and he works for a successful corporation, but all he can think about is how to avoid paying taxes. I tell him, Look, go to work, learn your profession, move up in the company, pay your taxes; dont try to avoid it. But all he thinks about is trying to avoid paying taxes. Then he said, Senator, you know my concern? I am afraid there is a whole generation of young people out there who will grow up believing they have no responsibility to pay for the functions of government, and I am worried.
He should be worried. We should all be worried because voluntary compliance, which has characterized the income tax system from the beginning, is eroding. That might be why the seventh largest economy in the world is the underground economy of the United States. That might also be why when, in 1981, a pollster named Dan Yankelovich asked a sample of the American people, Do you think you will get ahead if you abide by the rules, 81 percent of the people answered No.
