The third preference, the mortgage-interest deduction, is a $70 billion benefit that goes disproportionately to affluent homeowners. But Australia, Canada and the United Kingdom, which have no mortgage-interest deduction, have homeownership rates comparable to America’s. Every congressional district, however, has real estate brokers benefiting from the bankers who benefit by providing mortgages.
Baucus is proud to have been mentored by the greatest Montanan, Mike Mansfield, a Democrat who for 16 of his 24 Senate years was majority leader. Today, the main impediment to tax reform, aside from Baucus’ risk-averse colleagues, is Majority Leader Harry Reid, who Baucus insists, emphatically but implausibly, is a friend. Reid, who is as petty as Mansfield was grand, deplores partisanship but resents Democrats like Baucus who practice bipartisanship. Reid says he did not even read the Baucus-Hatch letter, and insists tax reform “can’t be revenue neutral; it can’t be even close to neutral.”
Each year 6.1 billion hours are spent complying with the tax code. This is equal to the work time of 3 million full-time workers, making tax compliance one of America’s largest industries. Is there time for Congress to reduce this waste of time?
Inevitably, however, the tax code has reached a critical mass of complexity that renders it almost unreformable. This illustrates the crisis of the regulatory state: Interest groups fasten themselves onto the government and immobilize it.
At the 2004 Republican convention, George W. Bush vowed to “simplify” the tax code’s “complicated mess.” The convention roared approval. Next, he promised new complexities — tax benefits for “opportunity zones” in depressed areas, a tax credit to encourage businesses to offer health savings accounts. Another roar of approval.
Since the 1986 simplification, the code has been re-complicated more than 15,000 times at the behest of Americans who simultaneously praise the principle of simplification. All other taxes could be abolished if we could tax the nation’s cognitive dissonance.