WASHINGTON, Sept. 2 (UPI) -- President Ronald Reagan was elected after running on a platform to cut federal taxes. Upon taking office Reagan delivered one major tax cut. Several smaller tax increases followed in subsequent years of his presidency. After the 1981 reduction, no major tax cut was enacted until 1997.
Entering the Republican National Convention four years ago, Americans were paying more in federal taxes as a percentage of the economy than at any other time since World War II. Then candidate George W. Bush campaigned on a platform to cut taxes $1.6 trillion and pledged in his convention speech he would reduce this burden on taxpayers as Reagan did 20 years ago.
Bush was ultimately elected but did not stop after passing a $1.3 trillion tax cut in 2001. He has proposed and passed three tax cuts in his first three years of his presidency. In doing so, Bush smashed the old philosophy of the Republican Party's tax cut agenda. The old promise was that a Republican president would fight for one tax cut and then oppose tax increases. The new promise is a tax cut every year.
The U.S. taxpayer is much better off today than four years ago under this new promise. First, no tax increases will be enacted following the latest Bush tax cuts as was the case with Reagan. A total of 217 members of the House of Representatives, 42 U.S. senators and President Bush have signed the Taxpayer Protection Pledge promising to vote against any tax increases. No Republican in Congress has voted for a tax increase since 1990.
More tax cuts and no tax increases have led to a significant drop in the federal tax burden. Federal taxes paid declined from 21 percent of the economy in 2000 to 17 percent of the economy in 2003. Clearly, U.S. taxpayers are shouldering less of a federal tax burden due to these tax cuts.
Second, a tax cut a year strategy has created incremental steps toward fundamental tax reform. Four more years of tax cuts in Bush's second term will bring the nation very close to achieving fundamental tax reform.
Recent media reports have suggested that the Bush administration may look to push a flat tax or other types of tax reform in the second term. Yet, tax reform does not necessarily mean passing one huge piece of legislation. Large legislation is easy to hold up so instead the Bush administration has taken an incremental approach by cutting taxes each and every year.
A central component of tax reform is that income should be taxed only once. Today we pay taxes when we earn our paychecks, when we save, when we invest, when we buy products and services and when we are foolish enough to die, the government wants half of what is left. Real tax reform taxes income only once and to achieve this requires eliminating the "Death Tax," the Alternative Minimum Tax, capital gains, dividends and other taxes on savings.
This incremental approach has the advantage that each of the elements above have its own built-in constituency, while support for an official tax reform plan is more diffuse. Farmers and small businesses convinced Congress to do away with the death tax. Similar alliances are being built around the other forms of double taxation.
The 2001 tax cut phased out the Death Tax, expanded tax-free retirement savings and lowered marginal tax rates. The 2002 tax cut accelerated business depreciation schedules, thus creating a first step toward full business expensing. The 2003 tax cut further lowered marginal tax rates, cut the capital gains tax, slashed the double tax on dividends, accelerated depreciation to 50 percent and included Alternative Minimum tax protections.
All of these changes make it much easier to finish fundamental tax reform. Washington bean counters and opponents of tax cuts continue to focus on the "cost" of tax cuts. By moving with incremental steps Bush has already eliminated more than $200 billion annually of the "costs" needed for fundamental tax reform.
A second term promises even more progress in the fight for tax reform. First, all tax cuts passed in the previous three years should be made permanent. Due to budget rules, each tax cut has a sunset to date in which the tax cut expires. Making all the tax cuts permanent is a top priority for the Bush administration in a second term.
The most wide-ranging change that can be made to the federal tax system will be Lifetime and Retirement Savings Accounts, which eliminates double taxation of savings and greatly simplifies the tax code. The 2004 Republican Platform Committee specifically endorsed this proposal, indicating this will be a priority in a second term Bush administration.
LSAs are savings accounts to be used for any type of saving and will allow an individual, to contribute up to $5,000 a year and make penalty-free withdrawals at any time. RSAs will allow individuals to contribute up to $5,000 a year for retirement purposes (in addition to the amounts contributed to an LSA) and works like a Roth Individual Retirement Account (IRA). The proposal greatly simplifies existing IRA rules, which have grown from 12 pages in 1981 to 110 pages now.
In addition, members of Congress will keep the drum rolling for tax reform in the future. Five congressional caucuses were created to specifically eliminate five different forms of double taxation in the tax code. These include the Zero Capital Gains Tax Caucus, the End the Death Tax Caucus, Abolish AMT Caucus, Full Business Expensing, and Universal IRA Caucus. Once these five forms of double taxation are completely eliminated, the next step is to tax income at one rate.
Despite a dropping federal tax burden U.S. taxpayers are still paying too much in federal, state, and local taxes. Moreover, the cost of tax compliance continues to grow. A tax cut every year has created an incremental approach for fundamental tax reform. A second term for the Bush administration will bring the country a new tax cut every year and with that comes a fairer, simpler, more efficient tax system for all Americans.
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(Grover G. Norquist is president of Americans for Tax Reform.)
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(United Press International's "Outside View" commentaries are written by outside contributors who specialize in a variety of issues. The views expressed do not necessarily reflect those of United Press International. In the interests of creating an open forum, original submissions are invited.)
