They say “timing is everything,” and “they” tend to be correct.

So that’s why few have noticed that the President's Advisory Panel on Federal Tax Reform has released its report. Scanning the summary, there seems to be some good analysis in there. The panel’s recommendations might well be an improvement, as would any number of other approaches, such as the fair tax, the flat tax, etc.

What the panel doesn’t seem to do is ask why the federal tax system is the way it is – complex and complicated, onerous and erratic.

Really, though, are we surprised by this? After 70 years or so of elevating special-interest politics to an art form, it’s no wonder that the various and apparently competing elements in our society have used the tax code as bounty for its constituencies. The net effect is one big mess.

Sadly, the panel doesn’t seem to address the most fundamental question, IMO: Why are lower-income people taxed at all? While the economic arguments for low marginal rates are sound as far as they go, they don’t take into account this overarching question. With the poverty line being at, say, $20,000 in income a year yet excluding only the first $3,300 as the panel suggests implies that we are taxing people back into poverty. This flips the supply-side argument on its head. The tax base rate on the poor is the highest, generally, and they are least able to employ the tax code’s preferences to their advantage. In this example, their tax base represents 85% of their income. As income goes up, the base goes down, generally.

IMO, that’s where all the hell of the tax code starts to break loose. Seeing the unfairness of that, the earned income tax credit was created. And myriad offsets were created up the income ladder, each attempting “normalize” for the unfairness or economic distortions of the tax code with counter-distortions.

Keeping people in poverty, however, should be the first thing we should be against, I suggest. So much of federal policy is allegedly aimed at “helping” the less advantaged, but why not start by undoing the obstacles to the poorest among us?

Virtually no one supports the current system, yet I suspect that the special-interests will ensure that the panel’s report will go nowhere. That’s because it asks the wrong question.

-Robert Capozzi