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You hear it constantly, around the water cooler and in small social gatherings: This Presidential election doesn't really matter since there is little appreciable difference between George W. Bush and Al Gore. But the belief that the choice is between Tweedledee and Tweedledum is deeply flawed. Genuine policy differences exist between the two main candidates that really matter to ordinary citizens, from Social Security to abortion to judicial appointments. Ironically, the area where their disagreement seems starkest -- tax policy -- is actually where they're closest together. And both are wrong in their basic approach.
To be sure, it appears that Bush and Gore are taking opposite sides on the issue. Bush is proposing a $1.3 trillion cut with an across-the-board reduction in tax brackets as its centerpiece. Gore, who is calling for a far more modest $500 billion package of targeted tax breaks, charges that Bush's proposal favors the rich and is fiscally irresponsible.
But the striking similarity is that both candidates are enamored with social engineering through the tax code. Gore is a big believer in tax incentives to promote specific policy goals, such as saving for education and retirement. He wants tax breaks to encourage more land conservation, ease the financial burden of buying health insurance, and help families meet child-care expenses, as well as promote energy efficiency and ethanol research. Bush is also offering tax incentives to help buy health insurance, save for education, and meet child-care expenses. And he wants to promote land conservation, charitable giving, and housing redevelopment.
LESS LEVEL THAN EVER. These are all worthy social and economic goals. But the policy solution the two candidates embrace will make the nation's Byzantine tax code even more complicated by loading it up with credits, deductions, exemptions, and income phase-outs. Their approach ensures that more and more taxpayers with similar incomes will send very different tax payments to Uncle Sam, depending on how they earn their income and how many credits and deductions they can use. The playing field will be less level than before. And the already significant burden of complying with the tax code -- estimated as costing the national economy as much as $130 billion a year -- will increase, as will the incentive for tax gamesmanship.
Why not give taxpayers a break? One of the candidates could embrace a progressive, simpler, income-tax system by broadening the tax base, thereby eliminating many breaks. For example, taxing capital gains as ordinary income would allow for lower rates and simplification, which would reduce both taxpayer frustration and tax-code inequities. Economists who specialize in taxes, such as Joel Slemrod of the University of Michigan and William Gale of the Brookings Institution, agree that plenty of room exists for "populist simplification." With a little leadership, even a modest turn in that direction would be far superior to what exists -- or what the candidates are proposing.
Tax simplification would also make government policy more transparent. Instead of pushing through hard-to-track subsidies, Washington would achieve its social and economic goals on the spending side of the fiscal ledger. Taxpayers could then decide whether more or less money should be spent in such worthwhile areas as education, child care, and land conservation.
Edmund Burke, an 18th-century British intellectual and member of Parliament, once wrote, "To tax and to please, no more than to love and be wise, is not given to man." Burke's insight is worth recalling when reviewing a blueprint for an ideal tax system. After all, taxes are responsive democracy at work. But we can certainly do better than the tax-code complexity that both Gore and Bush are determined to foist on us.
Farrell is contributing economics editor for Business Week and co-host of Minnesota Public Radio's Sound Money, which can be heard on weekends in nearly 200 broadcast markets nationwide Edited by Douglas Harbrecht
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