'Fine Mess': You Can Learn A Lot About A Country By Its Taxes
STEVE INSKEEP, HOST:
April, the cruelest month, is when taxes come due. The deadline arrives amid talk of changing the tax code. After a failed drive to change health insurance laws, President Trump said he'd like to move on.
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PRESIDENT DONALD TRUMP: I would say that we will probably start going very, very strongly for the big tax cuts and tax reform. That will be next.
INSKEEP: OK. He said tax cuts, which Congress has delivered on from time to time, and also tax reform, changing tax rules, which is much harder. We hate the complexity of our tax code. But every specific complexity is a benefit that somebody really likes.
An overhaul does happen every few decades, and journalist T. R. Reid says we are about due. He wrote a book called "A Fine Mess" comparing the tax rules in different countries and says the American tax code says something about who we are.
T. R. REID: It says we're a people who really don't like government much, and therefore, we complain whenever we have to send government a dime. We pay less tax than all the other rich countries. But we complain more about it, and then we make up for it. Americans give away more money to private charities - a hundred times as much as the French do, 50 times as much as the Brits - because we'd rather do things privately than through government.
INSKEEP: Do we really pay less than other countries?
REID: Yeah. Of the 35 richest countries, our total tax burden - that is, you take all the federal, state and local taxes as a percentage of GDP, overall wealth - of the 35 richest countries, the U.S. ranks 32nd in total tax burden. The only ones that pay less than we are Mexico and Chile.
INSKEEP: We may not like taxes, but we seem to like tax breaks, as a society, an awful lot compared to other countries.
REID: It's amazing. There are hundreds and hundreds of giveaways in the tax code. Some of them only applied to one taxpayer, and they never list the name. They say a company organized in Delaware on October 13, 1916. That would be General Motors, but they never mention that in the bill. And they cost us hundreds of billions of dollars.
You know, this very popular deduction, the mortgage interest deduction, costs the government $73 billion a year. Now, that's money, you know, that could treat wounded veterans or tighten the border or pay off the deficit. And instead, it's a subsidy to the richest people. Only 20 percent of homeowners ever take it.
INSKEEP: What has happened in other countries when that's been eliminated?
REID: Great Britain got rid of the mortgage interest deduction. They did it over about 10 years. They phased it out. And guess what - their homeownership rate is higher than ours. It's about 66 percent. Ours is now 62.5. But here's the thing - all the rich countries have about the same rate of homeownership, around 64 percent, whether they have the deduction or not. And if you ask any economist they'll tell you - all that deduction does is raise the price of a house.
INSKEEP: You pointed out something really fascinating early in this book. You noted that in the United States, there are multiple ways to save money tax-free but that Canada had a different system. What's the difference?
REID: Yeah. So we have a 401(k), a 403(b), a 457(b), a SEP, SARSEP. There's something called the SIMPLE IRA. Guess what - to do the SIMPLE IRA, you have to fill out two different IRS forms. We've just made it incredibly complicated. And now there's a billion-dollar industry that exists just to advise Americans how to put money in the bank.
Well in Canada, they have something called the tax-free savings account. Anybody can use it. You can put the money anywhere you want and take it out, use it for anything you want. And the interest and dividends are always tax-free. It's much simpler.
INSKEEP: Let me ask about raising a tax, adding a tax. There has been talk of a carbon tax to discourage the creation of a pollution that's linked to climate change. Has anybody done that successfully?
REID: (Laughter) Countries have tried it. It hasn't worked. Australia did the best one. Australia's a big coal producer and coal burner. They put in a carbon tax that was kind of a model for all the environmentalists. Guess what - it lasted two years. The government lost the next election, and the opposition took it away.
INSKEEP: What went wrong?
REID: As soon as they put it in, everybody's electric bill went up because the power companies had to pay the tax. And the power companies very generously put on every bill, your bill is higher because of this tax we have to (unintelligible). And people...
REID: And the government lost the next election. So carbon taxes have been hard. The point of my book is all over the world, these countries are experimenting with the ideas we're talking about, and we can see whether they work or not.
INSKEEP: Can I just ask about American exceptionalism, so to speak? You know that some of these tax reforms have worked in other countries. But they all have smaller economies than the United States. They mostly have smaller populations than the United States. And we're just different. Are you sure that they can be brought to the U.S. successfully?
REID: Yes. These ideas would work regardless of the size of the country. American exceptionalism is great. We do things that no other country can do, and that's fabulous. But sometimes, we're different just for the sake of being different. Like, we're the only rich country that doesn't provide health care for everybody. And we have the most complicated tax code ever seen on the planet. We don't need to do that. It could be simpler.
INSKEEP: And we've all been reminded in the Obamacare debate in recent weeks that the way that the United States government is encouraging people to buy health insurance now is through a tax credit.
REID: (Laughter) Yeah, exactly. That's how we do things in our country.
INSKEEP: Why does it take so many decades to enact tax reform in the United States?
REID: Yeah. What we've seen in our history is there was a tax code in 1922, big reform in 1954, big reform in 1986 - that's every 32 years. And the reason is, over three decades, you get this huge accumulation of loopholes and credits and exemptions and new rules. And it just becomes such a monster nobody can deal with this about every 32 years. And guess what - 32 years from 1986 is 2018. So the time has come for us to fix our tax code.
INSKEEP: Wait a minute. So President Trump might have picked the right moment to seize upon this as his next big priority.
REID: Well, if you believe in history repeating itself, absolutely. This is the time.
INSKEEP: So let me come back to the notion that the tax code says something about who we are and what our values are. If the tax code suggests who we are as a people, what are some features of the tax code of the United States that are unlikely to ever change?
REID: We probably will never have higher rates than Europe because we just don't like government as much as the Swedes do and the Austrians do. It doesn't have to be as complicated. In fact - you know, you can walk down the street in London or Amsterdam or Lima, and there's no H&R Block. We've just made it insanely complicated because there's huge industry now of tax preparation that has a big interest in complicated taxes. Is that basically American? I argue in my book we could get rid of it. I mean, the IRS could fill out the form for about 80 percent of all taxpayers. You wouldn't need H&R Block.
INSKEEP: The latest book from T.R. Reid is called "A Fine Mess: A Global Quest For A Simpler, Fairer, And More Efficient Tax System."
Thanks very much.
REID: Thank you, Steve. Great talking to you. Transcript provided by NPR, Copyright NPR.