Attention:

The President's Advisory Panel on Tax Reform

1440 New York Avenue NW

Suite 2100

Washington, DC 20220

Comments in response to:

Request For Comments #1

Submitted:

18 March 2005

Submitted by:

Individual

Blaise Burgman

P.O. Box 688

Elberta, AL 36530

<bburgman@acm.org>

To: The President's Advisory Panel on Tax Reform

Subject: Comments in response to: Request For Comments #1

From: Blaise Burgman (an individual)

P.O. Box 688

Elberta, AL 36530

<bburgman@acm.org>

Honorable Panel Members:

Please accept my responses to your questions identified in Request for
Comments #1.

1\. **Headaches, unnecessary complexity, and burdens that taxpayers -
both individuals and businesses - face because of the existing system.**

First, and foremost, it is nearly impossible for any individual to
understand how much tax that the individual pays to support the U.S.
Government. That is just wrong. Each taxpayer should be able to know how
much government is costing (in terms of dollars transferred directly
from that individual to the government), and while exact accounting is
not necessary, accuracy to within 1% should be expected.

The existing system is far too complex for any average individual to
understand, even if that individual is just trying to understand the
parts of the tax system that apply to that individual. This fact is
evidenced by the huge industry that has grown to help taxpayers comply
with the tax code; tax preparation software, tax lawyers, and tax
preparation firms are examples.

Another illustration of the burden of compliance with the existing is
provided by Money magazine's annual request for tax preparers to prepare
returns for a fictional taxpayer. Each of several preparers is given a
set of information (each is given the same information) and asked to
prepare a tax return. Never do the returns agree! And this is from
professional preparers! How can an individual be expected to be able to
comply with such a complex system?

The existing system requires much detailed record keeping, far beyond
that any individual is likely to require, or desire, in the absence of
the tax system.

2\. **Aspects of the tax system that are unfair.**

To me, fairness means the degree to which the tax system is being
applied consistently to all. The rules should not be selectively
enforced, applied indiscriminately, or inconsistently if the system is
to be considered fair. Based on the information available to me, I
believe the system is fair. I acknowledge I am probably somewhat naive
in this regard.

The tax system should only concern itself with consistent application to
all. It should not be used to try to compensate for "unfairness" in
other areas of life. Let's just make sure that the system itself doesn't
add to the problem by being another "unfairness."

3\. **Specific examples of how the tax code distorts important business
or personal decisions.**

The worst distortion is subtle. United States taxpayers are generally
unaware of how much their government costs, because the tax code is so
complex and insidious. Many see only their federal income tax "bill" on
April 15. Federal taxes on employment payments, payments for
unemployment insurance, tax on communications (911 and universal
service), corporate income tax, and the substantial "hidden" cost of
compliance with the tax code are examples of cost of government to the
individual that are hard to see. This unawareness results in the
taxpayer undervaluing the cost of government to the individual, thereby
encouraging the individual to encourage the Government to spend more.
That's the biggest and most damaging distortion.

(For the next two distortions, I assert that we (the Nation) want people
to earn money and save it. Earning money is a by-product of working or
productivity (in a capitalist system). Saving money results indirectly
in investment, which also increases productivity (indirectly), and
provides for a more robust and secure personal financial situation for
the earner/saver. I also assert that this method is much more efficient
than having the Government try to provide for individual financial
security with systems like social security.)

Taxing income provides a disincentive to (decide to) work. We actually
want people to work (and earn money), so we shouldn't tax the earning of
money. That goes for indirect work, like investment resulting in capital
gains, dividends, and interest income.

Taxing income provides a disincentive to invest money. Indirectly, this
means a disincentive to save, since most useful savings results in
investment income. Again, as for working, we want people to save and
invest, so we shouldn't tax that activity.

Our current tax system provides an unhealthy incentive to spend money.
Particularly, by allowing deductions for home mortgage interest,
individuals are encouraged to leverage equity they have in their home,
or go into debt to purchase a home. An especially concerning facet of
this distortion, is the recent urging of people to "consolidate your
credit card debt" by obtaining a home mortgage or by refinancing the
home.

Corporate income tax distorts business decisions by providing a
disincentive for the corporation to have income. Worse, since the
business must pass to the consumer its costs, including corporate income
tax cost, the individual eventually ends up paying this tax through
increased price of the product that the individual consumes.

Distortions closely related to those discussed for the corporate income
tax are those involving tax credits and qualifications for tax-related
activities. HUB zone investment, use of alternative fuels,
qualifications for child-care and other expenses, credits for
dependents, earned-income credits, certain non-taxable retirement
incomes, and "passive activity" limitations are examples of rules
leading to distortions. All these are, in fact, lead to distortions of
otherwise sound decision-making processes.

4\. **Goals that the Panel should try to achieve as it evaluates the
existing tax system and recommends options for reform.**

The Panel should recommend a system that (in priority order):

-   Provides an obvious and easily understandable accounting for the
    cost of government to the individual. It is extremely important for
    the taxpayer to understand how much the Government costs (that
    individual tax payer) so that intelligent decisions can be made by
    the taxpayer on issues of Government spending. (It would be nice if
    this cost visibility could go beyond dollars paid in tax, but it
    would be a good start to be able to see at least that much.)

-   Allows the taxpayer to comply without undue effort. Our current
    system is so complex it is very difficult for a well-meaning
    taxpayer to pay the correct and minimum amount of tax.

-   Does not discourage the desirable activities of working, earning
    income, and saving money. All of these activities contribute to the
    well-being of the individual and the Nation as a whole, and so
    should not be discouraged.

-   Does not allow the Government to substantially increase the overall
    tax burden without obvious impact to the taxpayer. There have been
    recommendations to gradually phase-in a new system, with the idea
    that a dramatic change would have a negative impact on our economy.
    A much worse impact would come from allowing the Government to
    institute two overlapping tax systems, for example, introducing a
    Federal sales tax, while not repealing and prohibiting the income
    tax.

-   Is resistant to modification by special interests, especially that
    such resistance is durable. The modifications only increase the
    complexity and arcane nature of the system.

-   Is stable and predictable (in general) many years into the future.

-   Minimizes distortions to decision-making by having a minimum of
    "special exceptions," deductions, and named credits.

-   Does not try to compensate for perceived "unfairness" in other areas
    of daily life or being. Considerations such as redressing past
    inequity, or compensating for unfortunate circumstances of birth,
    race, intelligence, and other like circumstances, should be absent
    from the proposed system.

-   Is achievable politically. An approach similar to that proposed by
    Stephen Moore of the CATO Institute called "The Freedom to Choose
    Flat Tax" (<http://www.cato.org/dailys/6-09-98.html>) is an example
    of how a system could be implemented to defuse political opposition.
    A more desirable system overall, however, would result in the
    elimination of the existing tax system and the initiation of a
    National sales tax, provided that the sales tax was immediately
    obvious to the tax payer, and not hidden from plain sight as
    gasoline taxes and some value-added taxes are. Further, it would be
    extremely important to permanently prohibit the continuation of, or
    re-institution of, the current tax systems (income tax, employment
    tax, etc.)

Thank you for your time, and for allowing me to provide this input to
your panel. I consider the work you have at hand a most important policy
issue. I believe our current administration and you, the Panel, have a
unique and excellent opportunity to improve our tax system and thereby
the fate of our nation and our way of life.

Sincerely,

Blaise Burgman (an individual); P.O. Box 688; Elberta, AL 36530;
bburgman@acm.org