Taxes.
We love to hate them.
And we hate to need them.
And this Congress this fall is going to spend
a lot of time debating them.
I'm Ron Elving at NPR.
Thank you for coming to my office hours.
The history of this country can be read as
a series of tax revolts,
from the Boston Tea Party in 1773
to the latest reincarnation of the Tea Party in 2009.
But overall, [in] those intervening years
we have also become rather attached to some of
the things that taxes pay for.
So at this point it isn't a question of whether
or not we have taxes but how much do we tax
and who actually winds up paying those taxes?
Now, the federal tax burden was originally
borne primarily by tariffs and fees on trade.
But for the last century or so,
the burden has been increasingly shouldered by income
and payroll taxes on businesses and on individuals.
Congress may raise taxes
in time of war for other causes,
or Congress can cut taxes
the way they did rather dramatically
at the beginning of the presidency of Ronald Reagan.
Now, Reagan had been an actor right after
World War II in the 1940s.
He started making a great deal of money and
discovered that the top tax rate in those days was
90 percent on his last dollar of income.
He found that pretty hard to bear and
changed a lot of his views on government and politics.
And when he became president in 1981,
he introduced a tax cut plan that over three years
reduced that top rate to about 50 percent.
But he still wasn't satisfied and in his second term after
he was re-elected, he put forward a Treasury Department
plan that would lower rates still more
and pay for that by eliminating
a lot of the tax shelters, tax breaks and
special treatment that people were able to get to
shelter some of their income from those high rates.
Now, the Treasury plan ran into some trouble
on Capitol Hill, where there were lots of lobbyists
for the people who were losing the special treatment
they had under the current code.
And so eventually a group of senators got together
and said the way to beat this is to get more radical.
Lower the rate all the way from 50 percent
all the way down to 28 percent
and eliminate even more of the special treatment for
certain favorite interests and individuals.
That turned the trick.
They passed it in the Senate.
They got it through the House.
President Reagan signed it into law.
That was the Tax Reform Act of 1986.
And that was the most significant change made to our
tax system on the federal level since the creation
of the income tax itself a hundred years ago.
Since that time Congress and a succession of
presidents have been busy tinkering with the tax codes
some more, putting in special treatment and differential
treatment for certain kinds of activity,
and that of course pushing the top rate back up
gradually towards 40 percent.
At this point, the business tax has a top rate of
35 percent but actually relatively few businesses pay
that full 35 percent because there are lots of ways for
them to legally limit their exposure to the tax and pay
less than 35 percent in effect.
So it's time to go back at this entire tax reform business
again, as Congress has tended to do roughly once
every 30 years.
Broadly, Congress has two options:
They can enact major surgery on the tax code
as they did in 1986.
Or they could just pass tax cuts.
Just lower the rates particularly for certain
income groups. That would be popular.
That could get a lot of votes from Republicans,
who have been talking about tax cuts for years.
But many Republicans don't want to do that
unless those tax cuts are paid for by spending cuts.
Otherwise it would just add to the annual budget deficit,
and that adds to the national debt — which is already
at $20 trillion dollars and counting.
But there just is not a consensus even within
the Republican Party as to where to cut the spending.
Where do you spend less money right now?
On the military?
On roads and bridges?
On Social Security?
Medicare?
Perhaps education?
So for months Congress has been looking forward
to finishing with health care and turning to the much
more fun prospect of cutting taxes and overhauling the
tax code, but right now it looks as though that might
be a case of leaping from the frying pan and into the fire.
At NPR, I'm Ron Elving.
Thank you for coming to my office hours.
