Giving Families Credit Where Credit Is Due

Posted: Apr 02, 2007 9:26 AM
Giving Families Credit Where Credit Is Due

Every year right after Christmas millions of Americans get a little gift from the Internal Revenue Service in their mailbox. It's their 1040 income tax booklet, and every year, sadly, this unsolicited present from the IRS gets a little heftier. This year the growth of the booklet was especially noticeable; instead of a saddle-stitched binding with staples holding a few dozen pages together, the 2006 Federal Income Tax booklet has a glued spine just like the Sears catalog.

The difference is that this catalog is ordering something from you.

What it's ordering is a record take of more than $1 trillion in individual income tax revenue. Revenue to the U.S. Treasury from individuals was up a whopping 12.6 percent in fiscal year 2006. Did you receive a 12.6 percent salary increase last year?

To make matters worse, chances are that the typical American will not be calculating this record tax liability on his or her own. In what may be the most telling tax stat of our time, some 60 percent of Americans now use the services of a paid specialist to prepare their return. When a majority of citizens no longer can -- or try to -- interpret the tax code and figure their own tax bill, we have passed into bureaucratic Nirvana. Government by guru has become our national fiscal religion.

Right about this time, what comes next for most advocates of tax simplicity like me is a renewed call for drastic overhaul of the U.S. tax code. This year advocates have some overseas reinforcement for this view. The World Economic Forum's report on global competitiveness found that the inefficiency of the U.S. tax system ranks it 107th among the 117 nations included in its analysis.

Earlier this month a fresh effort was initiated in Congress to restore reason to our nation's tax policies. Former Majority Leader Dick Armey is the chairman of Freedom Works, a group dedicated to smaller government and lower taxes. In conjunction with the Republican Study Committee, the group held a rally last week on Capitol Hill to drum up support for the Taxpayer Bill of Rights.

Like the seed dropped on hard ground, however, this Bill of Rights is unlikely to take root in a Congress that seems more bent every day on massive tax hikes. The prime targets for liberal Democrats on Capital Hill are the child tax credit and marriage protection relief, measures that, thanks to the insistence of these same liberals, are set to partially or completely expire after 2010.

The case of the child tax credit particularly illustrates the problem. A $500-per-child credit for each child 17 years of age and under was dubbed the "Crown Jewel" of the Republican Contract with America in 1994. The GOP victory in House races that year paved the way for adoption of the credit, which, in truth, had enjoyed intellectual and political support from key figures in both major parties. The popular credit finally passed in 1997, and Congress doubled it in 2001 at President Bush's insistence.

The credit now returns an estimated $46 billion to families with children every year. That's money that can help pay for braces, buy a bicycle, or purchase a math tutoring program for the family computer. It might even finance an ice cream cone or a trip to the zoo. The point is, it's the family's money, and parents, and nations, make wise investments when they invest in kids.

The Senate budget bill extends this credit, and marriage penalty relief, for two years. Acting after the Senate, Rep. Charlie Rangel (D-N.Y.) and the House Ways and Means Committee have rejected an extension of both of these credits, and their version of the budget bill will tap families and businesses for an extra $392 billion over the next five years. Defenders of these huge hikes seize on the expiration date for President Bush's 2001 reforms and assert that they are not new taxes at all.

Nonsense. The Democratic Congress is reneging on a promise on which families have come to rely. A hike is a hike is a hike. We should remember that any tax reduction is a form of tax simplification. Government takes less, and the American people keep more. Then families can order more of what they want from a real store catalogue.