Security and the U.S. Tax Code: Ripe for Reform
2007 - The balance of power in the U.S. Congress shifted dramatically
on January 3, 2007; it’s been more than a decade since
the leadership in both the House and the Senate changed hands
in the same election cycle. Back then, in 1994, the Republicans
took over Congress with their “Contract with America.”
Now it’s the Democrats’ turn to lead, and the
new majority has already affected the domestic policy agenda
in Washington, renewing the focus on both universal healthcare
and an increase in the federal minimum wage.
Important issues, no doubt. But in its haste to bring new
ideas to the table, the 110th Congress should not forget
issues that may have fallen out of the national spotlight
but are still very much in need of reform. Two in particular
stand out: Social Security and tax code reform. Both are
touched by the work we do at the Society, and both must
be brought back to the forefront.
Security reform was once a hot topic in Washington, and
although the national focus on the issue has clearly waned,
the problem has not gone away. On the contrary, a crisis
is looming, and unless we do something about it soon, future
generations will pay the price.
to the best estimates of the Congressional Budget Office’s
Social Security trustees in 2005, the Social Security trust
fund balance will peak in the year 2017. Subsequently, assuming
no policy changes, this trust fund will steadily decline,
until fully depleted in 2041. Once the Social Security trust
fund’s assets have been depleted, other tax revenues
would be needed to keep benefits at currently scheduled
levels; Social Security taxes will then be able to fund
only about three-quarters of its benefit obligations.
is no clear path back to Social Security solvency, but one
thing is certain: Our national leaders must act soon to
save an American institution that has for decades spared
hard-working Americans from the plight of living out their
golden years in poverty. In 2000, President Bush proposed
individual private accounts as a way to potentially increase
a beneficiary’s return on investment and eliminate
the shortfall. Democrats, for their part, have balked at
the idea of privatizing Social Security, maintaining that
there are better ways to solve the problem, like raising
the payroll tax rates, increasing the age at which individuals
are eligible for benefits, raising or removing the cap on
the payroll tax, or reducing the benefits retirees receive.
The different reforms the parties have suggested reflect
an ideological divide over the nature of Social Security—Is
it an entitlement program, or a retirement program? —and
led to a stalemate in the last Congress. In the meantime,
however, the day of reckoning continues to grow closer.
area ripe for reform is our muddled federal tax code. As
any American who has ever filled out a tax return can tell
you, our tax system is hopelessly broken—“a
beast whose complexity, confusion and outright unfairness
have corrupted our economy and society,” according
to Steve Forbes. Examples that illustrate the complexity
and confusion abound.
the most decried example is the alternative minimum tax
(AMT), a parallel tax system originally intended to address
the abuses of a few upper-income taxpayers that, because
it was not indexed for inflation, has evolved to place an
ever-increasing burden on the middle class. The AMT relies
upon the good faith of taxpayers to calculate their income
tax twice and pay the higher tax, based on two difficult
calculations using two sets of rules. Sounder tax-policy
initiatives would save complex tax calculations for tax
benefits that are efficient, fair, and easily monitored.
and policymakers must act now to fix a federal tax code
that has become overly complex, opaque, and replete with
special-interest exceptions. A fully transparent code would
allow taxpayers to feel confident that when they pay taxes
they are paying into a fair and equitable system, administered
in a simple, understandable, and effective way. Our current
system does not inspire such confidence.
these problems won’t be easy, but there is hope. Charles
Rangel, the incoming Democratic chairman of the House’s
powerful tax-writing Ways and Means Committee, has frequently
said he intends to reach out to Republicans and work across
party lines whenever possible. Let’s hope this spirit
pervades Washington in the new Congress. We can and should
expect more than narrow recommendations and temporary fixes.
Congress would be doing New Yorkers—and all Americans—a
disservice by not pushing for real, significant, permanent
reforms to Social Security and our flawed tax system. Anything
less would be like putting a Band-Aid on a broken leg.
Publisher, The CPA Journal
Executive Director, NYSSCPA