USA Has Two Tax Systems that
Are Separate
and Unequal
By David Cay Johnston, a former tax
reporter for The New York Times. He is also the author of two books
about taxes: Free Lunch and Perfectly Legal. The excerpt below
is from Mr. Johnston's article "Trust but Verify", published in
Tax Notes on
August 4, 2008.
Now, how do we have two [tax] systems, separate and unequal?
Congress treats Americans who work for wages, claim deductions for
spouses and children, collect interest and dividends, and withdraw from
pension and retirement savings accounts the way Ronald Reagan said we should
treat the Soviets on arms reduction: Trust, but verify.
Congress does not trust this vast majority of citizens to report their
incomes honestly and, with good reason, demands verification by employers,
banks, brokerages, and mutual funds, Congress also requires Social Security
numbers for all dependents.
Business owners and investors are another story. Congress trusts them to
fully and accurately report their revenues, their profits, and their capital
gains and not to charge personal expenses as tax- deductible expenses.
For these favored citizens, there is no independent reporting, except for
capital gains, in which only the amount realized at sale is reported and the
individual is trusted to accurately report basis. Except for requiring
audits, which are rarely performed today compared to two decades or more
ago, Congress assumes that these taxpayers keep their books the same way
Rome's vestal virgins retained their privileged status.
Predictably, taxpayers are no more virtuous than those vestal leaders who
partied with some of the politically powerful while officialdom looked the
other way. Such willful blindness is an eternal problem for the governed.
Tax unfairness clearly builds disrespect for government and can be seen
as a subsidy of the richest among us financed by those further down the
income ladder -- a subsidy the Bible describes as "evil."
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