Book Review - A Fine Mess - New York Times

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johnkarls
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Book Review - A Fine Mess - New York Times

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NY Times – 6/23/2017


What a World Tour of Tax Codes Can Teach the U.S. About How To Reform Its Own

Review by David Cay Johnston -- a tax reporter for The New York Times 1995-2008 during which he was awarded a Pulitzer Prize for his reporting of taxes; he is currently drafting a new federal tax code for the 21st-century economy that he calls the Prosperity Tax.


Tax ranks high among global economic activities. Federal taxes alone constitute more than a quarter of the American economy. Including state and local levies brings the total tax burden to more than a quarter of Gross Domestic Product. Taxes account for about 45 percent of the economies of Denmark, France and Belgium, while in less prosperous countries like Chile and Mexico taxes are a fifth or less of the economy. Overall taxes and disguised taxes like government fees, account for about 21 percent of the global economy. Given those numbers, researchers coming here from another planet might report back that Earthlings love taxes, especially those humans living in rich countries, because high-tax countries tend to be the most prosperous.

Of course, we don’t even like taxes, ranking the subject near death among those things we find most disagreeable. That’s because we think of what we could do with the money we are forced to part with more often than we contemplate how taxes finance benefits like education, infrastructure, justice and the military, which form the foundations of both liberty and private wealth creation. We don’t think much about the fact that in a society with no taxes the ruthless rule, free to take our property and our lives, while as Justice Oliver Wendell Holmes observed, taxes buy us civilization.

Our aversion to considering the benefits of taxes helps explain why, as T.R. Reid shows in his charming book, “A Fine Mess,” our elected leaders piece together tax systems far more complex than Rube Goldberg machines. This aversion also helps explain why we keep voting for politicians who hand out favors for the political donor class, creating a system that burdens some heavily while allowing others, like Donald Trump, to boast that not paying taxes shows they are smart. Under our current tax system multinational companies and some individuals literally turn the burden of taxes into a profit center, an open secret among top tax accountants and lawyers.

Reid takes us on a world tour of tax systems and the efforts to reform them. He approaches the most disliked specialty of the dismal science of economics with a wry voice and a light touch. And while his reporting contains some technical flaws, they are more lint on a rich and sturdy fabric of facts presented in plain English.

As a longtime Washington Post correspondent, Reid knows how to make the distant seem close. His eye for the telling detail is sharp.

For example, a running thread through the book involves tax simplification. After Senate Republicans staged hearings in 1997 and 1998 on supposed abuses of taxpayers (the testimony was later shown to be malarkey), Congress enacted an anticomplexity provision: “subsection IX of subpart (ii) of Section 7803(c)(2)(B) of the Internal Revenue Code.”

Reid shows how the design of a tax system can enhance rather than hobble economies. He cites reforms in Estonia, a hotbed of the digital age innovation, and New Zealand, which despite few natural resources and a remote location, prospers by importing tourists and exporting wines. In both cases a tax code redesign was central to the economic success. He also shows that sometimes tax changes work out because of luck or economic circumstances that are fleeting.

Americans are accustomed to regarding the I.R.S. as the source of their tax miseries. Reid relates what happened when Congress considered impeaching John Koskinen, the I.R.S. Commissioner, in 2016. “I didn’t write the tax laws, Congressmen,” Koskinen testified. “You did that.”

Reid smoothly explains the concept of tax expenditures. These totaled about $1.2 trillion in 2014, almost as much as the $1.4 trillion that individuals paid in federal income taxes. When Congress makes mortgage interest tax deductible or gives a tax credit for plug-in electric cars it is the same as if Congress wrote a check to homeowners and Chevy Volt drivers like my wife and me. Fewer than half of homeowners take the mortgage interest deduction and only the affluent buy electric cars, showing how tax expenditures are stealth welfare for people who don’t need a government handout. Reid argues that “if a government giveaway is justified by social benefits, its backers should make their case and ask Congress to appropriate the money” because a $1 tax break and a $1 government-issued check are, in economics, the same thing.

Reid does not recommend that tax expenditures, if any, should be eliminated. He just uses plain English to explain the concepts and others, especially how Congress enables offshore tax avoidance by the rich and multinational corporations. His overall recommendation for tax reform is simplify, simplify, simplify.

Those unfamiliar with economics, accounting or tax law will be better able to understand these subjects by reading “A Fine Mess.” It will help them grasp why our tax code, designed more than a century ago for a national industrial economy, is so at odds with our 21st-century needs, and why, instead of helping us prosper, it throws sand in the gears of commerce. With enough readers, Reid might even help us to initiate real tax reform by replacing a tax code so complex it includes the anti-complexity rule in Section 7803(c)(2)(B).

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