Tax Reform Pressures

Report Outline
Proposals for Federal Tax Changes
Process of Enacting Tax Legislation
Questions Involved in Proposed Reforms
Special Focus

Proposals for Federal Tax Changes

Warning of Taxpayer Revolt Against Inequities

Around 117 million Americans are in the process of preparing their federal income tax returns for filing by April 15, a mass compliance that was believed impossible only a few decades ago and is still the envy of most of the world. Taxpaying is perhaps the best-known duty of citizenship. Though grumbling with Benjamin Franklin about “nothing is certain save death and taxes,” a majority of Americans have come to agree with the late Justice Oliver Wendell Holmes that taxes are “what we pay for civilized society.” Collection of 97 per cent of all federal taxes without coercion has been attributed to a taxpayer belief that the tax system, if not perfect, is basically fair.

That belief is being eroded now, public officials have begun to say, by a growing awareness of flaws in the system—an awareness nurtured by the upward movement of taxes at all levels of government. “We face the possibility of a taxpayer revolt if we do not soon make major reforms in our income taxes,” Joseph W. Barr, Secretary of the Treasury in the last few weeks of the Johnson administration, told the Joint Economic Committee of Congress on Jan. 17. Barr testified that in 1967 there were 155 individuals with incomes of more than $200,000 “who paid the U. S. government not one cent of taxes.” Twenty-one of them had incomes of more than $1 million.

They were not tax evaders but tax avoiders, those who manage to escape taxation quite legally because they or their lawyers and accountants have mastered the intricacies of the bulky and complex Internal Revenue Code of 1954, the nation's basic tax law. Congressional testimony and Treasury Department studies are replete with examples of rich widows who put their fortunes into tax-exempt state and local bonds and never have to file a federal tax return; of city dwellers who deduct large losses on hobby farms from their taxable income; of real estate entrepreneurs operating on borrowed money, taking tax deductions on interest costs, building depreciation and other tax writeoffs to the point that deductions exceed taxable income.