What Tax Reform Will Really Look Like, Part 1

[This 3-part post was written a few months ago as a facebook Note.  We are bound to hear much talk in the near future about "tax reform," and it is only the awareness of our history that will allow us the advantage of being able to roll our eyes every time a Republican or Democrat brings up the subject.]

Any time there is discussion regarding the Buffett Rule (or any type of tax reform), we will hear references made to "loopholes" in our tax code that allow the wealthy to pay little or no income tax, and this inevitably leads to the phrase "fair share."  Let's take a look back at our country's fairly recent past and see what we might expect once the Buffett Rule becomes law (emphasis in quotes added).

January 17, 1969.  Address to Congress by Joseph Walker Barr, Treasury Secretary: "Our income tax system needs major reforms now, as a matter of importance and urgency.  That system essentially depends on an accurate self-assessment by taxpayers.  This, in turn, depends on widespread confidence that the tax laws and the tax administration are equitable, and that everyone is paying according to his ability to pay.  The middle classes are likely to revolt against income taxes not because of the level or amount of the taxes they must pay, but because certain provisions of the tax laws unfairly lighten the burden of others who can afford to pay."

It was revealed in Barr's address that, in 1966, there were 155 tax returns filed by Americans with incomes above $200,000 "on which no federal income taxes were paid, including 21 with income above $1 million."  Congress responded by introducing the "minimum tax."  This is what lawmakers had to say on the subject:

"Increasingly in recent years, taxpayers with substantial incomes have found ways of gaining tax advantages from the provisions that were placed in the code primarily to aid limited segments of the economy.  In fact, in many cases these taxpayers have found ways to pile one advantage on top of another.  The committee agrees with the House that this is an intolerable situation.  It should not have been possible for 154 individuals with adjusted gross incomes of $200,000 or more to pay no federal income tax."  -Sen. Russell B. Long, (D) Louisiana; Chairman, Senate Finance Committee

"Million dollar incomes without tax liability will become a thing of the past."  -Rep. Wilbur D. Mills, (D) Arkansas; Chairman, House Ways and Means Committee

"It was unconscionable that some 155 very wealthy persons paid no tax at all in prior years; the minimum tax and list of tax preferences should foreclose this opportunity."  -Rep. Ogden R. Reid, (R) New York

"I do want to point out that this bill does represent a real accomplishment in three fundamental areas.  First, it increases tax equity by substantially closing loopholes that have enabled some citizens to avoid paying their fair share of taxes while imposing unduly heavy burdens on other citizens."  -Rep. John W. Byrnes, (R) Wisconsin

"As to those 155 or so individuals who supposedly had incomes in excess of $200,000 a year but, because they paid no federal income taxes thereon, set this whole matter in motion, it might be noted that most, and probably all of them, from now on, will have to start paying at least something again in the way of federal income taxes as a result of this bill's passage."  -Rep. Howard W. Robinson, (R) New York

And when President Nixon signed the bill into law on December 30, 1969, he said: "A large number of high-income persons who have paid little or no federal income taxes will now bear a fairer share of the tax burden through enactment of a minimum income tax comparable to the proposal that I submitted to Congress..."

This was the Tax Reform Act of 1969.  Interesting to note that between 1966 and 1974, there was a 57 percent increase in the number of individuals and families with income over $200,000 who paid little or no income tax - from 155 to 244.

(Source: America: Who Really Pays the Taxes?, by Barlett and Steele, 1994)