Resolutions for the Money Taxes Take From Us
Sick of resolving to clean up your financial life, only to find a few months down the road that you’ve failed? I say let’s pass the buck in 1995 and make resolutions for legislators rather than ourselves. State, federal and local officers are spending 40% of our money anyway.
Admittedly, with the federal debt pushing $5 trillion and budget crises in nearly every hamlet of the nation, even strong fiscal resolve may not result in lower tax rates. So what should legislators resolve to do in 1995? Here’s a start:
* Resolve to stop messing with the tax code unless you’re personally able to fill out the forms you have changed.
The U.S. income tax code--now under scrutiny for additional revision--has been changed an average 2 1/2 times a year for the last eight years. The tax code has been made highly complex and unstable, says Arthur P. Hall, senior economist at the Tax Foundation in Washington. Such fast-paced change might be acceptable if the alterations were clear, but for a variety of reasons--some of them noble--many of the changes have been Byzantine. The end result has been that increasing numbers of Americans are forced to seek professional help with filing--at costs ranging from $50 to more than $1,000 for an annual return.
Why the complication? There are many hypotheses, and all ring partly true. A Money magazine survey of 1993 may have uncovered the real culprit: Only 24 of the 58 members of the two congressional tax-writing committees filled out their returns, and those who do are entitled to special IRS help, Money reported.
* Resolve to cut your own budget as drastically as you require others to cut theirs.
One of the bitter ironies of the Orange County financial debacle is the way the county plans to solve its budget crisis. County officials are grappling with a $160-million annual deficit caused by bad investments made by the former county treasurer. They have said they will slash agency budgets as much as 29%, yet few of the county supervisors--the same watchdogs who answered questions about 5-year-old audit reports warning of impending disaster by crying “Audit report? What audit report?"--were willing to cut their own pay and staff. And then only by 5% or 10% margins.
Perhaps if all government officials were forced to share equally in the pain of financial disasters, they’d pay attention to such audits.
* Trim the fat.
Deficit reduction has been a rallying cry for years, yet every year something called a pork-buster bill is introduced--and subsequently shot down. What is the pork-buster bill? It would nix hundreds of penny-ante, federally sponsored projects that have been tacked on to unrelated appropriations bills without debate, without individual approval--and often against the wishes of the department being subsidized. Together, these small-change projects cost about $1 billion a year.
This year, the pork-buster bill will be shelved to make way for massive “recision” legislation that aims to cut between $150 billion and $200 billion from federal spending, says a staffer who works for Rep. Harris W. Fawell (R-Ill.), a perennial sponsor of pork busters.
No doubt it would be great to save $200 billion, but if such drastic cuts are impossible, how about just getting rid of the $1 billion worth of pork barrel projects? Admittedly that’s a far cry from the $5 trillion that’s needed to pay off U.S. debt--or even the $200 billion to $300 billion needed to close one year’s budget gap. Still, as a wise congressman once said: “A billion here, a billion there. Pretty soon it starts to add up.”
* Stop fudging the numbers.
Who is to blame for the fact that budget projections often are far rosier than the results? No one knows for sure, but even the simplest checking can turn up some of the reasons. Consider one “revenue enhancing” measure in the General Agreement on Tariffs and Trade. Congress, to pay partially for costs associated with the treaty, will eliminate the so-called guaranteed rate on U.S. Savings Bonds.
The rate, currently 4%, was paid to anyone who cashed in their bonds within five years. People who held their bonds longer got the higher of the guaranteed rate or a variable rate equal to 85% of the yield on five-year Treasury notes.
Starting sometime this year, the guaranteed rate will be out and all Savings Bonds will pay a variable rate. The variable-rate formula remains the same for bonds held five years or longer. For bonds held less than five years, the Treasury will pay a rate equivalent to 85% of the yield on six-month Treasuries.
Interest will accrue on the bonds just once in six months, rather than monthly. These two revisions are supposed to save the government $122 million over five years.
What’s wrong with this picture? When this provision was “scored” for its revenue-raising abilities last April, numbers crunchers at the Congressional Budget Office assumed that the relevant T-bill rate would be 4.3% in 1995 and 4.6% in years beyond. But by the time the bill was passed in November, it was clear that these interest projections were way off. Currently, six-month T-bills pay 6.81%, which, if the change were in effect today, would obligate the Treasury to pay 5.79% rather than 4% on savings bonds cashed early.
Overall, this “revenue raiser” could cost the government $72 million each year, or $358 million over five years.
The budget office doesn’t think the bloodletting will be so bad, because it believes a lot of people will cash in their bonds whenever the mood strikes without worrying about whether they might be losing money.
In fact, the office estimated that eight out of 10 holders of savings bonds would make such a costly mistake and sacrifice one to five months’ worth of interest.
Nonetheless, the budget office acknowledges that the savings bond provisions are sure to cost rather than save the government money.