I have long argued that debates about the fairness of the rates of the individual income tax are pointless without consideration of the bases to which these rates apply.
They're akin to debating how a baseball umpire calls the strike zone in a game whose rules call some batters out after only two strikes while allowing others three, four, five or even six.
I was gratified, therefore, to read last week a report from the Congressional Research Service (CRS) that both enumerated the more than 200 separate tax breaks, totaling $1.1 trillion (yes trillion), that currently riddle the U.S. individual income tax code and categorized them by the various rationales that advocates use to justify their existence.
The CRS divides tax breaks into three categories: those intended to change behavior (save more, consume differently, work more, etc.); those intended to finance government programs (tax-exempt bonds, exclusion of Social Security and Medicare benefits, deduction of state income tax payments); and those providing preferential treatment to a particular class of taxpayer (the child credit).
By far the largest category is behavior modification. Congress gives us $330 billion in tax breaks to induce us to save more, the largest being the $163 billion for the exclusion of pension contributions and earnings, followed by $74 billion for the exclusion of certain capital gains, $52 billion for the exclusion of portions of gifts and estates, and $16 billion for the exclusion of contributions to and earnings of individual retirement accounts.
At the same time, Congress gives us $225 billion to induce us to consume more health care services by excluding employer payments for health insurance and allowing deductions for medical expenses exceeding a certain percent of income; gives us $154 billion to consume more housing by allowing deductions for mortgage interest and property tax payments and exclusion of capital gains on income from home sales; and gives us $52 billion to encourage us to make donations to charitable organizations.
To encourage people to work more, we provide a $58 billion credit for certain earned income and an $8 billion exclusion for income earned in foreign countries. To encourage businesses to invest more, we provide $10 billion in accelerated depreciation credits.
Finally, the CRS treats the exclusion from income of Medicare benefits ($76 billion), Social Security benefits ($43 billion), the deduction from federal taxable income of state income tax payments ($54 billion) and interest income from bonds deemed somehow more worthy of support, such as those issued by state and local governments, housing and economic development entities, ($43 billion) as indirect ways of financing government programs.
So what's the point of all this shuffling of income tax data?
The point is coming to a clearer, more practical understanding of that much-appealed-to but rarely defined concept of "fair share."
Would it be more "fair," better for the game, to allow batters with averages below .200 to get four strikes?
Who knows? But you can be sure that any proposal to make that change would divert attention from discussion of how different umpires have different definitions of the strike zone.
In the same way, we, as the "rules committee" of the U.S. economy, need to consider all the incentives our tax code has accumulated and make judgments about which, for the good of the economy should stay and which should go.
For my part, I would throw them all out so we would have a more transparent system and thus an easier and more direct way of deciding among the various demands on our resources.
But knowing that such radical change is beyond the capacity of virtually any deliberative body, I propose taking up a far less comprehensive (but only marginally less complicated) challenge.
Let's use whatever comes of the current Supreme Court deliberations regarding the Affordable Health Care act as the reason for clearly explaining and fully debating all of the current tax breaks related to health care.
The deductions, exclusions and differential treatments in this area alone account for over $300 billion each year.
If we took on the task of sorting out just this portion of the junk drawer that is our personal income tax code, we would make more progress in defining "fair share" than we have accomplished in four years of shouting.