April 6 (Bloomberg) — Sometimes tax seasons find their own movie. The movie for tax season 2012 is "The Hunger Games," which came about just about the time most of us were opening the tax preparers' kit.
Washington is the equivalent of the Capitol in the film and Suzanne Collins's book, an arbitrary and dictatorial central government with its thumb on the rest, always "reminding us how totally we are at their mercy."
The U.S. by this analogy would be Panem, the dystopia of book and film. We taxpayers are like the characters who dwell in the outer districts and must give up one or the other of our best assets as annual tribute.
Of course, the tribute demanded is not entirely predictable. The rules are rigid except when they aren't, giving advisers, the Effie Trinkets of the tax world, outsized power. And the tribute is uneven, as in "The Hunger Games." Some of us are arbitrarily chosen and must sacrifice years to an audit; the people in the Capitol cackle and watch the blood spill. Those in the outer districts watch out of horrified interest; at least it wasn't them.
In tax terms at least, more and worse games are yet to come. Taxes are set to rise in 2013 not only on capital gains but also on income and dividends. Arbitrariness and complexity plague the arrangement, as well. Even if you pay what you think you owe, the Internal Revenue Service can always find a "gotcha," and conduct a "reaping."
To reduce the dystopian aspect of American tax life, three fixes are in order.
The first is to simplify and clarify the code. If our rates were simpler and fewer, then even those in the outermost districts would know the most basic things about where we stood with the Capitol. As Fareed Zakaria noted last fall, "complexity equals corruption." The U.S. tax code is 10 times as long as France's.
A second fix would be to lower the tribute itself that is exacted. The House Budget Committee chairman, Paul Ryan, has suggested two rates: 10 percent and 25 percent. That might mean ending deductions crucial to many interest groups, like the home-mortgage-interest deduction. But losing those breaks might be worth it if rates were lower and rules were clearer.
Since Ryan spoke up and offered his budget, he has been pursued like Rue or Katniss. The critics say Ryan is helping the rich. Many of us don't see it that way: Higher earners who get to keep more cash will do something valuable, like create jobs.
A third change would be to ensure that everyone, regardless of income or residential district, pays some tax. Right now the bottom half of earners pay no income tax. Those who don't contribute have no stake in change. They are like the mob in "The Hunger Games" that enjoys the show of others paying tribute. If they handed over even a few pennies, they might involve themselves, which would broaden the impetus for tax reform.
In the policy world, the blockbuster equivalent of "The Hunger Games" is "Why Nations Fail" by Daron Acemoglu and James Robinson. The book draws a valuable distinction between "extractive" regimes that take from all — like Panem or Saudi Arabia — and inclusive ones, whose institutions make citizens stakeholders in prosperity. To my mind, "Why Nations Fail" captures our tax problem precisely: too much extraction and too little participation.
I e-mailed Acemoglu for his views on tax reform. He replied to point out that lower earners do pay Social Security and state taxes. So he's less concerned than I am about having every citizen in every district pay some income tax specifically.
He recommended sustaining some progressivity while at the same time "keeping marginal rates low, which of course would be feasible by getting rid of loopholes of all sorts (both for businesses and individuals). We probably have one of the most inefficient tax systems in the OECD."
In other words, the solution you come up with may be slightly different. But what "The Hunger Games" and "Why Nations Fail" suggest to me is that recognizing a good tax plan is simple. A good tax plan is one that makes us feel more like citizens, and less like objects of ritual sacrifice.
(Amity Shlaes is a Bloomberg View columnist and the director of the Four Percent Growth Project at the Bush Institute. The opinions expressed are her own.)
© Copyright 2012 Bloomberg
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