An Inconvenient Tax (2011) - full transcript

( thunder rumbling )

( rain falling )

>> Man: HOW MANY PAGES

IS THE U.S. TAX CODE?

>> ( phone beeping )

>> Woman: HOW MANY PAGES

THE STIMULUS BILL IS?

>> Man: NO, NO, THE TAX CODE.

>> Woman: TAX CODE? UM, A LOT.

I DON'T KNOW OFF THE TOP

OF MY HEAD.



>> ( extension ringing )

>> Woman 2: WELCOME

TO THE UNITED STATES

GOVERNMENT PRINTING OFFICE.

>> Man: YES, UM, I WAS TRYING

TO FIND OUT HOW LARGE

THE TAX CODE IS.

>> Woman 2: I'M SORRY?

>> Man: THE U.S. TAX CODE.

I WAS CURIOUS HOW MANY PAGES

IT IS.

>> Woman 2: I'M NOT FAMILIAR

WITH THAT, SIR.

I DON'T KNOW WHAT



YOU'RE REFERENCING.

>> Man: IT'S THE DOCUMENT

THAT CONGRESS COMES UP WITH

TO TELL THE INTERNAL REVENUE

SERVICE HOW TO TAX AMERICANS.

>> Woman 2: OH! ARE YOU DEALING

WITH A RECENT CODE?

>> Man: A-A WHAT?

>> Woman 2: RECENTLY FOR 19--

FOR 2008 OR NINE OR WHAT?

>> Man: I MEAN, I GUESS,

LIKE, RIGHT NOW.

>> ( extension ringing )

>> Woman 3: HELLO,

INTERNAL REVENUE.

>> Man: YES, I WAS TRYING

TO FIND OUT HOW MANY PAGES

THE TAX CODE IS.

>> Woman 3: I WOULDN'T KNOW.

I HAVE NO IDEA.

>> Man: WHAT ABOUT THE HEAD

OF THE IRS, I MEAN,

WOULD HE KNOW?

>> Woman 3: WELL, I'M SURE

HE WOULD, BUT YOU PROBABLY

WON'T GET THROUGH TO HIM.

>> Man: SO, IT'S KIND OF LIKE

SENSITIVE INFORMATION

THAT CAN'T BE--

>> Woman 3: NO, IT'S NOT

SENSITIVE, IT'S JUST THAT

NONE OF US KNOW.

WE HAVE NO WAY OF TELLING YOU

HOW MANY PAGES

ARE IN THE TAX CODE.

WE'RE LOOKING AT VOLUMES

AND VOLUMES AND VOLUMES

AND VOLUMES!

THE ONLY THING I CAN SAY

IS MAYBE, UM...

YOUR LIBRARY WOULD HAVE

THAT INFORMATION,

BECAUSE WE DON'T HAVE IT

ON OUR COMPUTER.

>> * APRIL 15th

* HAS COME AGAIN

* IT'S TIME TO MAIL

* YOUR RETURNS IN

* TO SEE WHAT YOU HAVE TO PAY

* OR WHAT'S COMING BACK

( fiddle plays )

* WELL, IT'S ALL PENCILS

* AND CALCULATORS

* FORMS, RECEIPTS

* AN HOUR LATER

* UNCLE SAM WILL GET

* THAT OLD CHECK

* WILL IT BE ENOUGH TO PAY

* FOR ALL THE STUFF

* WE GOT TODAY?

* TODAY WE'RE NOT THE SAME

* AS WE ONCE WERE

* WARS AND ROADS AND EDUCATION

* EVERYTHING THAT MAKES

* A NATION

* CAN'T BE PAID FOR

* WITH A BROKEN CODE

* WE GOTTA FIX THE SYSTEM

* OR GO HOME

* FIX THE SYSTEM

* OR GO HOME

* WE'LL CUT TAXES DOWN

* OR RAISE THEM HIGH

* EITHER WAY THE FLAG WILL FLY

* THAT'S THE MESS

* THAT WE'RE DEALING WITH

* THE FARE IS FLAT

* THE FLAT IS FAIR

* UNCLE SAM'S DOWN

* TO HIS UNDERWEAR

* WHILE EVERYONE

* PREACHES THEIR NEW PLAN

* WELL, I DON'T CARE

* IF YOU WROTE A BOOK

* I DO THINK CONGRESS IS

* FULL OF CROOKS

* THAT DON'T CHANGE A THING

* FOR UNCLE SAM

* GOTTA FIX THE SYSTEM

* OR GO HOME

* GOTTA FIX THE SYSTEM

* OR GO HOME

* TIERED TAX, FLAT TAX, V.A.T.

* WHICH PLAN IS

* THE BEST OF THESE?

* I CAN'T EVEN READ MY W2

* EX-TAX, GAS TAX

* GONNA NEED SOME EX-LAX

* BABY BOOMERS ALL RETIRE

* WHILE OUR DEBT

* IS CLIMBING HIGHER

* HERE COME MY CONSUMPTION BASE

>> * WHERE MY MONEY?

>> * MISPLACED SOMEWHERE

* IN THE CODE

* GOTTA FIX THE SYSTEM

* OR GO HOME

* GOTTA FIX THE SYSTEM

* OR GO HOME

>> Thorndike: THE PROBLEM

WITH TAXES AND DEMOCRACY

IS THAT TAXES ARE COMPLICATED

AND TEDIOUS AND UNPLEASANT.

PEOPLE DON'T WANT

TO TALK ABOUT THEM.

THEY DON'T WANT TO READ

ABOUT THEM.

THEY WANT TO COMPLAIN ABOUT

THEM, BUT ACTUALLY LEARNING

SOMETHING ABOUT THEM

IS NO FUN FOR ANYBODY,

AND YET THEY ARE SO IMPORTANT

TO THE WAY THE GOVERNMENT WORKS,

TO THE WAY THE ECONOMY

FUNCTIONS, WE CAN'T AFFORD

TO NOT PAY ATTENTION

TO WHAT KIND OF TAXES WE HAVE.

>> TROOPS OF AN ALIEN SOURCE

ARE APPROACHING FROM THE SKY.

RADIO CONTACT HAS BEEN

ATTEMPTED, BUT CANNOT

BE ESTABLISHED.

INSTRUCTIONS ARE TO PREPARE

FOR AN ATTACK

BY AN UNKNOWN ENEMY.

>> THE ONE OBLIGATION

THAT EVERY CITIZEN HAS

IS TO PAY THEIR TAXES,

AND THERE'S 175 MILLION

TAXPAYERS WHO INTERACT

IN THE TAX SYSTEM,

SO THAT'S THE ONE THING

THAT THE FEDERAL GOVERNMENT HAS

THAT EVERYBODY HAS A STAKE IN.

>> THERE'S NOT AN AMERICAN

BREATHING TODAY THAT'S NOT

AFFECTED BY THE TAX CODE.

IT AFFECTS HIS OR HER JOB,

IT AFFECTS WHETHER OR NOT

YOU CAN AFFORD TO, UH,

BUY A CAR,

WHETHER YOUR JOB'S GONNA

STILL BE THERE NEXT YEAR...

EVERYTHING A PERSON

IN THIS COUNTRY DOES

IS AFFECTED BY THE TAX CODE.

>> I WILL SUCCEED IN CREATING

A PERFECT BEING.

>> WHEN YOU THINK ABOUT HOW

THE TAX LAWS AFFECT

EVERY ASPECT OF OUR LIVES,

JUST ABOUT-- HOUSING

AND HEALTHCARE AND EDUCATION

AND FAMILY AND DIVORCE

AND MARRIAGE, CHILDCARE...

IT GOES ON AND ON.

RETIREMENT.

THERE'S SUCH A CONNECTION

BETWEEN THE WAY WE TAX,

WHOM WE TAX, WHOM WE DON'T,

& THE WAY GOVERNMENT FUNCTIONS.

>> HEY, WHO DO YOU THINK

YOU ARE, ANYWAY?

>> ANSWER ME,

OR I'LL DESTROY YOU!

>> YOU'RE UP AGAINST

THE FUNDAMENTAL LIMITATION

THAT THE TAX CODE HAS BECOME

A REAL MONSTROSITY

IN TERMS OF THE COMPLEXITY

OF THE BURDEN.

>> Linder: WE HAVE CREATED

A MONSTER...

THAT SEEMS NOT TO BE ABLE

TO BE CONTROLLED.

>> ( screaming )

>> YOU ADD IN ALL OF

THE CRAZY POLITICAL

ACTION COMMITTEES,

AND EVERYBODY HAS AN AGENDA,

AND THE LOBBYISTS,

AND, YOU KNOW, YOU HAVE A MESS.

>> ( screaming )

>> IN THE LAST 20 YEARS,

I THINK WE'VE AMENDED THE THING

14,000 TIMES, ADDED

THREE MILLION NEW WORDS.

>> AAH! JULIE! AAH!

>> EVEN THOSE WHO WOULD LIKE

TO MAKE IT EFFICIENT

AND MAKE IT WORK,

IT'S STILL A MONSTER.

NOBODY UNDERSTANDS IT.

>> EVERY TIME YOU ADD

A NEW PROVISION--

AND THERE'S BEEN 14,000 NEW ONES

IN THE LAST 20 YEARS--

YOU HAVE TO PUT SOMETHING

IN A FORM TO COVER THAT.

>> Shaviro: THE AVERAGE AMERICAN

SPENDS, I THINK, 57 HOURS

WORKING ON THEIR TAXES.

MANY OF THEM HIRE ACCOUNTANTS

BECAUSE IT'S BECOME

SO HORRIBLY COMPLICATED.

>> Man: PERHAPS THE 1st QUESTION

YOU SHOULD ASK YOURSELF IS,

"DO I REALLY ENJOY

DOING FIGURES?"

IF YOU HAVE A DISTASTE

FOR MATHEMATICS,

IS IS NOT THE WORK FOR YOU.

>> IT IS SO COMPLICATED,

YOU HAVE NO IDEA

WHETHER OR NOT

YOU'VE DONE IT RIGHT OR NOT.

>> TAXES. BUDGETS.

PAPERWORK POLLUTION.

THERE'S JUST NO GETTING

AROUND IT.

>> WHETHER IT'S AN INDIVIDUAL

OR A SMALL BUSINESS OPERATOR,

HE CAN CALL THE IRS

THREE DIFFERENT TIMES

AND GET THREE ANSWERS

ABOUT THE SAME QUESTION.

IT'S SO COMPLICATED

THE IRS DOESN'T UNDERSTAND IT.

>> WE WANT THE TAXPAYERS TO KNOW

THAT WE'RE HERE TO HELP.

AFTER ALL, THEY ARE THE ONES

THAT WE REALLY WORK FOR.

>> THE IRS, CONTRARY

TO WHAT MOST PEOPLE THINK,

REALLY HAS NOTHING TO SAY

ABOUT WHAT THE TAX CODE IS.

IT'S JUST GIVEN THE TAX CODE

THAT'S PASSED BY THE CONGRESS

AND THE ADMINISTRATION.

IT'S THEN ADMINISTERED.

>> NONE OF US EVER HESITATES

TO CRITICIZE CONGRESS

AT EVERY OPPORTUNITY,

BUT HOW MANY EVER STOP TO THINK

ABOUT THE BROAD POWERS

OF CONGRESS AND HOW THESE POWERS

AFFECT EVERY ONE OF US?

>> THE WAY THE CONGRESS

OF THE UNITED STATES WORKS,

THINGS HAVE TO BE

IN A JUST TOTAL...

SMACK-AGAINST-THE-WALL CRISIS

FOR ANYTHING TO GET FIXED.

>> ( screams )

>> THE TAX SYSTEM IS

SO COMPLICATED THAT A LOT

OF PEOPLE FEEL LIKE THEY'RE

NOT GETTING THEIR FAIR SHARE

OF ALL THE TAX BREAKS.

>> ALMOST EVERYBODY FEELS

THAT THE OTHER GUY

IS ESCAPING TAXES.

>> AND AS THEY BELIEVE

INCREASINGLY THAT IT'S NOT FAIR,

THAT REFLECTS ON ALL

OF GOVERNMENT.

>> ONE RESULT IS

THE APRIL 15th PHENOMENON.

THIS ALIEN FORCE, YOU KNOW,

FROM MARS OR SOMETHING,

IS TAKING AWAY

YOUR HARD-EARNED MONEY,

NOT "I'M PARTICIPATING

IN A COMMUNITY

WHERE WE MADE COMMON DECISIONS,

AND I'M GLAD TO BE ABLE

TO PARTICIPATE IN IT,"

WHICH IS THE WAY

A HEALTHY SOCIETY WOULD WORK.

>> I DON'T THINK IT'S

AN EXAGGERATION TO SAY THAT

OUR DEMOCRACY AS WE'VE KNOWN IT

IS AT STAKE.

>> WE LIVE LIKE PARTS

OF A MACHINE.

WE DON'T KNOW OUR FATHERS

OR MOTHERS, WE'RE RAISED

IN CUBICLES, THE SICK

AND THE OLD ARE PUT TO DEATH...

>> IT IS THE ONE AND ONLY WAY

TO MAINTAIN THE SUPREME RACE.

HAVE YOU FORGOTTEN--

>> OUR PEOPLE HAVE FORGOTTEN.

THEY HAVE BEEN MADE TO FORGET.

>> IF WE BELIEVE THAT WE

OUGHT TO HAVE, UH,

FEDERAL ASSISTANCE FOR,

NOT JUST HURRICANES AND FLOODS,

YOU KNOW, BUT HIGHWAYS

AND OUR COURT SYSTEM

AND POLICE ON THE STREET

AND OUR EDUCATION SYSTEM

AND OUR HEALTH SYSTEM

AND THE FOOD

AND DRUG ADMINISTRATION...

IF WE WANT A SECURITIES

AND EXCHANGE COMMISSION,

IF WE WANT A FEDERAL

TRADE COMMISSION,

IF WE WANT TO HAVE THE THINGS

THAT WE'VE GROWN USED TO,

WHICH MAY BE EXCESSIVE NOW.

I MEAN, SOME OF THEM MAY BE,

AND OTHERS WE WANT TO LOOK AT.

BUT IF WE WANT GOVERNMENT,

FEDERAL GOVERNMENT,

TO LOOK AFTER THE PUBLIC

IN LOTS OF WAYS,

'CAUSE SOCIETY IS

SO COMPLICATED, WE WILL NOT

BE ABLE TO AFFORD THAT.

>> THE CURRENT TAX SYSTEM

JUST ISN'T UP TO THAT CHALLENGE.

WE'RE GONNA NEED AN EFFICIENT

WAY OF RAISING REVENUE,

AND ONE THAT IS FAIR

AND THAT PEOPLE

PERCEIVE TO BE FAIR.

>> WE FACE PROBLEMS

IN THIS COUNTRY RIGHT NOW,

FISCAL PROBLEMS

OVER THE LONG TERM

THAT ARE SO SERIOUS

THAT WE SHOULD ALL FEAR

FOR THE SAFETY OF OUR CHILDREN

DOWN THE ROAD.

AMERICANS CANNOT IGNORE

THAT THEY'RE GONNA HAVE

TO JUST COWBOY UP

AND DEAL WITH THIS NASTY,

BORING, TEDIOUS TOPIC,

UH, BECAUSE IT'S JUST TOO--

TOO IMPORTANT TO IGNORE.

OBJECTIONS TO TAXATION

ARE FRAMED IN TERMS

OF WHY THIS IS UNFAIR TO ME,

WHY THIS IS UNFAIR

TO PEOPLE LIKE ME,

WHY IT TREATS OTHER PEOPLE

DIFFERENTLY THAN IT TREATS ME,

AND I THINK THAT THAT OUTRAGE

THAT CAN DEVELOP

AROUND SPECIAL TREATMENT

AND FAVORITISM, UH,

IS A KEY TO UNDERSTANDING

AMERICAN TAX HISTORY.

THE U.S. WAS BORN

OF A TAX REVOLT,

BUT IT WAS ACTUALLY

NOT A REVOLT AGAINST HIGH TAXES.

THE BOSTON TEA PARTY

WAS A REVOLT AGAINST

TAX LOOPHOLES.

THE BRITISH HAD PASSED A LAW

THAT GRANTED CERTAIN

SPECIAL FAVORS

TO A FEW MERCHANTS

WHO WERE SELLING TEA,

AND AMERICAN MERCHANTS

RESENTED THE MONOPOLY

THAT HAD BEEN GRANTED HERE

AND THE TAX EXEMPTIONS

THAT HAD BEEN GRANTED,

AND THEIR OBJECTIONS

TO THE BRITISH TAX

WERE REALLY DIRECTED

AT THE LOOPHOLES

THAT WERE A PART OF THAT TAX,

NOT AT THE TAX ITSELF.

IT'S IMPORTANT BECAUSE IT IS

AMERICANS' FIRST EXPERIENCE

WITH REALLY, UH, THROWING DOWN--

WELL, THROWING THE TEA

INTO THE HARBOR--

BUT SIMPLY TO SAY

WE ARE NOT GONNA STAND FOR

THIS KIND OF SPECIAL TREATMENT.

WE ARE NOT GONNA STAND

FOR TAXES THAT DON'T TREAT

EVERYONE EQUALLY.

THAT'S THE KIND OF TAX REVOLT

IT WAS, AND THERE ARE MORE

TAX REVOLTS LIKE THAT

OVER THE COURSE

OF AMERICAN HISTORY.

>> ( cannon fires )

>> MANY OF THE ARGUMENTS

OVER TAXATION

IN THE EARLY REPUBLIC,

IN THE EARLY YEARS

AFTER THE CONSTITUTION

WAS RATIFIED,

WERE ABOUT TAXATION.

THOMAS JEFFERSON'S PARTY

GENERALLY BELIEVED

THAT THE FEDERAL GOVERNMENT

SHOULD CONFINE ITSELF

TO IMPORT DUTIES

AND FUND ITSELF

THROUGH A TARIFF.

THE FEDERALISTS INSISTED

ON USING INTERNAL TAXES,

AS WELL, AND THAT PRODUCED

QUITE A BIT OF CONFLICT,

INCLUDING THE WHISKEY REBELLION,

AN INTERNAL TAX

MORE POORLY TOLERATED

IN THIS PERIOD OF TIME.

IT OUTRAGED FARMERS,

WHO WERE DEPENDING ON--

ON THE PRODUCTION OF WHISKEY

TO MAKE THEIR LIVING

AND WHO FELT THAT IT WAS UNFAIR

TO IMPOSE A TAX ON THEIR PRODUCT

SPECIFICALLY.

IT POSED A SIGNIFICANT THREAT

TO THE FEDERAL GOVERNMENT,

BUT IN MANY RESPECTS GAVE

THE FEDERAL GOVERNMENT

AN OPPORTUNITY TO DEMONSTRATE

FOR THE FIRST TIME

THAT IT WAS ABLE

TO TAKE CARE OF ITSELF.

THE FEDERAL GOVERNMENT SENT

TROOPS INTO WESTERN PENNSYLVANIA

AND QUELLED THE REBELLION

AND ESTABLISHED

THAT THE FEDERAL GOVERNMENT

NOT ONLY HAD THE LEGAL AUTHORITY

TO IMPOSE THESE TAXES,

BUT ALSO HAD THE POWER

TO IMPOSE THEM, AS WELL.

>> ** ( "Yankee Doodle Dandy" )

>> Fox: DURING THE CIVIL WAR,

LINCOLN KNEW THAT THE GOVERNMENT

NEEDED REVENUE,

AND SO THEY ACTUALLY ADOPTED

THE FIRST FEDERAL INCOME TAX.

>> ONE OF THE STRIKING THINGS

ABOUT THIS WARTIME TAX

WAS THAT IT WAS CONDUCTED

IN PUBLIC, AND ANYONE

COULD GO AND ASK TO SEE THEM.

THEY COULD GO TO THE LOCAL

COLLECTOR'S OFFICE AND SAY,

"I WANT TO SEE

MY NEIGHBOR'S TAX RETURN."

THIS WAS ABOUT AS UNPOPULAR

AS YOU WOULD EXPECT IT TO BE.

PEOPLE REALLY FELT LIKE THIS

WAS AN INVASION

ON THEIR PRIVACY.

THEY DIDN'T WANT PEOPLE

PAWING AROUND

IN THEIR PERSONAL AFFAIRS,

BUT THERE WERE MANY PEOPLE

AT THE TIME, INCLUDING

MANY POLITICAL LEADERS,

WHO FELT THAT THIS WAS

A VITAL COMPONENT

OF THE INCOME TAX,

BECAUSE IT ENSURED

BETTER COMPLIANCE.

IF YOUR NEIGHBORS COULD GO IN

AND LOOK AT YOUR TAX RETURNS

AND SEE THAT YOU WEREN'T

REPORTING A REASONABLE AMOUNT

OF MONEY, THEY COULD REPORT

YOU TO THE TAX COLLECTORS,

AND THEY MIGHT GO

AND INVESTIGATE,

WHICH THEY HAD THE RIGHT TO DO.

THE SOUTH WAS MUCH MORE

RELUCTANT TO IMPOSE

HEAVY TAXES, AND RELIED

MUCH MORE THAN THE NORTH

ON LOANS, ON PRINTING

PAPER MONEY...

ALSO ON JUST CONFISCATING

GOODS THAT THEY NEEDED

FOR THEIR--

FOR FIGHTING THE WAR,

AND THE RESULTS WERE

FINANCIALLY DISASTROUS

FOR THE CONFEDERACY.

THEY NEVER WERE ABLE TO DEVELOP

A ROBUST TAX SYSTEM,

AND I THINK, IN PART,

THIS IS A-- WAS A CULTURAL

RESISTANCE TO TAX POLICY,

ESPECIALLY IN THE EARLY YEARS

OF THE WAR.

>> WELL, NO ONE LOVED

THE INCOME TAX IN THE CIVIL WAR.

IT WAS A NECESSITY,

LIKE ALL TAXES ARE,

BUT IT WAS TREMENDOUSLY HELPFUL

IN ENABLING THE UNION

TO PAY FOR THE WAR

WITHOUT ENTIRELY RESORTING

TO BORROWING, AND YOU COULD

ARGUE THAT THE INCOME TAX

REALLY HELPED THE UNION

WIN THE WAR.

>> SURRENDER...

MY POOR ARMY.

>> Weisman: BUT AS SOON

AS THE WAR WAS OVER,

EVERYONE WANTED TO REPEAL IT.

IT WAS A, UH, DISTASTEFUL TAX,

AND THEY REPEALED IT

STEP BY STEP.

BUT AS THEY DID SO,

STARTING IN THE 1860s

AND THEN THE 1870s,

UH, THERE WERE WARNINGS,

EVEN FROM REPUBLICANS,

WHO SAID, "THIS TAX

WILL COME BACK.

WE'LL HAVE TO TURN BACK

TO BACK TO IT AGAIN,

EITHER BECAUSE OF A CRISIS,

UH, IN OUR-- A MILITARY CRISIS,

A WAR, OR BECAUSE OF

AN ECONOMIC CRISIS,

AND THIS IS THE TAX

THAT AMERICANS ARE GONNA HAVE

TO GET USED TO IN THE FUTURE."

>> ( out-of-tune piano playing )

>> WHAT HAPPENED

AT THE TURN OF THE CENTURY

WAS THE EMERGENCE

OF A MIDDLE CLASS

AND AN UPPER MIDDLE CLASS

OF PROFESSIONALS.

THE MAN WHO SYMBOLIZED THEM

WAS, UH, TEDDY ROOSEVELT,

AND WHO EMBRACED THE INCOME TAX,

ALTHOUGH HE DIDN'T

GET IT PASSED, BUT HE EMBRACED

IT DURING HIS PRESIDENCY.

>> Thorndike: THERE IS

A CONTINUAL AND FAIRLY SPIRITED

DEBATE ABOUT HOW TO REINTRODUCE

THE INCOME TAX IN A WAY

THAT WOULD PASS

CONSTITUTIONAL MUSTER

AND THAT WOULD ALLOW LAWMAKERS

TO REDUCE THEIR DEPENDENCE

ON TARIFF DUTIES

AND REPLACE THEM

WITH SOMETHING MORE PROGRESSIVE.

>> BY 1913, WE HAD

THE 16th AMENDMENT,

WHICH WAS NECESSARY

BECAUSE OF THE SUPREME COURT

DECISION THAT SAID

THAT, UH, YOU COULDN'T HAVE

THE INCOME TAX CONSTITUTIONALLY

WITHOUT THE AMENDMENT.

>> Thorndike: RIGHT AROUND

THE SAME TIME THAT

WOODROW WILSON BECAME PRESIDENT,

THE INCOME TAX WAS PART

OF THE REFORMS THAT HE THEN

ENACTED INTO LAW

THROUGH STATUTE.

SO, YOU CREATE THIS INCOME TAX

IN 1913, IT, UH, BARELY GETS

ITS FEET ON THE GROUND

BEFORE WORLD WAR ONE,

ONCE AGAIN, DISRUPTS

TARIFF REVENUES,

CREATES A REVENUE CRISIS

FOR THE FEDERAL GOVERNMENT,

AND CONGRESS TURNS

TO THE INCOME TAX

AS THE MOST LIKELY

REPLACEMENT FOR THIS

IN THE TIME OF WAR.

>> Man: THREE THOUSAND MILES

FROM HOME, AN AMERICAN ARMY

IS FIGHTING FOR YOU.

EVERYTHING YOU HOLD WORTHWHILE

IS AT STAKE.

>> Fox: DURING WORLD WAR ONE,

THE TOP TAX RATE MOVES

FROM 7% TO 77%,

AND SUDDENLY TAXES BECOME

A HUGE CONCERN OF

A LOT OF PEOPLE.

PEOPLE CAME TO CONGRESS--

THE FIRST DEDUCTION,

THE FIRST ONE THAT WAS

REALLY FOCUSED ON THE TAX LAWS,

WAS THE CHARITABLE DEDUCTION,

AND THAT'S BECAUSE

PRESIDENTS OF UNIVERSITIES

AND COLLEGE CAME TO CONGRESS

AND SAID, "LOOK, WE'RE NOT

GETTING CONTRIBUTIONS.

YOU'RE TAKING 77%

OF THE TOP DOLLARS

OF RICH PEOPLE."

SO CONGRESS SAID, WELL,

WE'LL GIVE YOU

A CHARITABLE DEDUCTION,

AND VERY MUCH, THAT'S THE WAY

THE LAWS EVOLVED.

SO, IN THE EARLY 1920s,

SUDDENLY THERE WAS

A SPECIAL RATE

FOR CAPITAL GAINS,

A LOW RATE FOR CAPITAL GAINS.

THERE WAS RELIEF

FOR CONTRIBUTIONS

TO RETIREMENT PLANS,

AND LITTLE BY LITTLE,

THE INCOME TAX BECAME

SOMETHING OTHER THAN

A REVENUE RAISING SYSTEM.

IT BECAME ALSO, AS IT IS TODAY,

A WAY OF TRYING TO MICROMANAGE

THE WAY PEOPLE BEHAVE,

OR TO GIVE THEM RELIEF

FOR CERTAIN BEHAVIOR

HOPING THAT THEY WILL

BEHAVE IN THAT WAY.

>> Man: THE WAR IS OVER,

AND THERE'LL NEVER BE ANOTHER.

>> ( marching bands playing )

>> Thorndike: THE WAR ENDS,

AND THERE'S A SORT OF

SCALING BACK.

THERE'S A, "YOU KNOW, WE DON'T

NEED AS MUCH MONEY ANYMORE.

WE DO NEED TO RETIRE SOME DEBT,

BUT WE CAN LET GO

SOME OF THAT WARTIME TAXATION,

SOME OF THAT PAINFUL,

SACRIFICIAL WARTIME TAXATION."

THE LEADER OF THAT EFFORT

AFTER WORLD WAR ONE

WAS ANDREW MELLON,

WHO WAS SUCH A POWERFUL

TREASURY SECRETARY

THAT HE SERVED

IN THREE ADMINISTRATIONS.

PEOPLE OFTEN SAID

THAT THREE DIFFERENT PRESIDENTS

SERVED UNDER HIM.

BUT I THINK WHAT'S MOST STRIKING

ABOUT ANDREW MELLON IS NOT

THAT HE CUT TAXES,

WHICH I THINK ALMOST ANYONE

WOULD'VE DONE IN THE WAKE

OF WORLD WAR ONE, BUT THAT HE,

BY CUTTING TAXES,

BY SORT OF DE-FANGING

THE INCOME TAX, UH,

AND MAKING IT MORE MODERATE,

ENSURED THAT IT WOULD SURVIVE.

IF WOODROW WILSON MADE

THE WORLD SAFE FOR DEMOCRACY,

ANDREW MELLON MADE THE WORLD

SAFE FOR INCOME TAXATION.

HE MADE IT A TAX

THAT PEOPLE COULD TOLERATE.

>> FDR: YESTERDAY,

DECEMBER 7th, 1941,

A DATE WHICH WILL

LIVE IN INFAMY...

>> ( explosions )

>> THE UNITED STATES OF AMERICA

WAS SUDDENLY

AND DELIBERATELY ATTACKED

BY NAVAL AND AIR FORCES

OF THE EMPIRE OF JAPAN.

NO MATTER HOW LONG IT MAY

TAKE US TO OVERCOME

THIS PREMEDITATED INVASION,

THE AMERICAN PEOPLE

IN THEIR RIGHTEOUS MIGHT

WILL WIN THROUGH

TO ABSOLUTE VICTORY.

>> ( people cheering )

>> BEFORE WORLD WAR TWO--

1939, 1940-- NO MORE THAN 10%

OF HOUSEHOLDS PAID

THE INCOME TAX.

IT REMAINED A CLASS TAX.

BUT THEN PEARL HARBOR HAPPENED,

AND HITLER INVADED EUROPE.

AND FRANKLIN ROOSEVELT

CAME TO THE CONGRESS

AND CAME TO THE AMERICAN PEOPLE

AND SAID THAT THE FUTURE

OF THE UNITED STATES

WAS AT STAKE.

AND HE SAID, "SO, WE HAVE

TO MOVE FROM A TAX ON THE FEW

TO A MASS TAX

THAT IS ON THE MANY."

>> BUT THE RICH PAY THE TAXES.

WHY SHOULD I WORRY?

>> THAT'S WHERE WE'RE

FOOLING OURSELVES.

>> THIS WAS A REALLY

IMPORTANT CHANGE.

THEY LOWER THE EXEMPTIONS,

AND SUDDENLY MILLIONS OF PEOPLE

WHO HAVE NEVER PAID

AN INCOME TAX IN THE PAST

AND WHO HAVE, SOME OF THEM,

ASPIRED TO THE NOTION

OF SOMEDAY GETTING TO PAY

INCOME TAX, 'CAUSE IT WOULD MEAN

THAT THEY WERE RICH,

WELL, THEY WERE NOT ALL

THAT RICH AND SUDDENLY FINDING

THEMSELVES PAYING INCOME TAXES.

>> THE 1942 REVENUE BILL

WILL IMPOSE THE HEAVIEST

TAX BURDEN EVER PLACED

UPON THE AMERICAN CITIZENS.

>> FOR SINGLE PEOPLE,

NOW THE VALUE OF DOLLARS

WERE DIFFERENT--

OF A DOLLAR WAS DIFFERENT.

BUT SINGLE PEOPLE PAID A TAX

ON INCOME OVER $500

UNDER THE 1942-43 REVENUE ACTS.

>> THE NATIONAL ASSOCIATION

OF MANUFACTURERS,

YOU KNOW, INTERESTED IN,

TODAY, NOT PAYING MORE TAXES

THAN THEY ABSOLUTELY HAVE TO--

THEY SAID THAT NO BUSINESS

SHOULD MAKE MORE

THAN THEY ABSOLUTELY NEEDED

TO STAY ALIVE, AND TAXES

SHOULD CONSUME EVERYTHING ELSE.

>> CORPORATION RATES

HAVE ALSO BEEN SUBSTANTIALLY

INCREASED ON BOTH NORMAL

AND EXCESS PROFITS.

WE BELIEVE THESE RATES

ARE ADEQUATE TO PREVENT

ANYONE REALIZING UNDUE PROFITS

OUT OF THE WAR EFFORT.

>> THIS IS A BIG CHANGE.

IT MAKES THE INCOME TAX

MUCH MORE PRODUCTIVE,

HELPS IT RAISE MUCH,

MUCH MORE MONEY.

IT ALSO POSES ALL SORTS

OF DIFFICULTIES

FOR THE FEDERAL GOVERNMENT,

BECAUSE THEY HAVE TO INSTRUCT

ALL OF THESE PEOPLE IN HOW

TO PAY THEIR INCOME TAXES, WHICH

IS NOT AN EASY THING TO DO.

THEY INSTITUTED A HUGE

PUBLIC RELATIONS CAMPAIGN

TO TELL PEOPLE THAT THIS

WAS THEIR RESPONSIBILITY,

THEY WERE GONNA HAVE TO DO IT.

THEY WANTED TO MAKE A CONNECTION

BETWEEN THE SACRIFICE

THAT PEOPLE WERE MAKING

ON THE BATTLEFIELD

AND THE FINANCIAL SACRIFICE

THAT WAS BEING ASKED OF PEOPLE

ON THE HOME FRONT.

>> I AM WILLING TO PAY TAXES

TO PROVIDE NATIONAL DEFENSE

FOR MY COUNTRY,

TO SEE THAT WE HAVE

AN ARMY, A NAVY, AND AIRPLANES

STRONG ENOUGH TO PROTECT US

AGAINST ANY INVADERS.

>> IT WASN'T JUST ABOUT

CHANGING A FINANCIAL INSTRUMENT;

IT WAS REALLY ABOUT CHANGING

POLITICAL CULTURE

AND CIVIL RITUALS

IN AN IMPORTANT WAY,

AND REALLY CREATING

A WHOLE NEW CIVIC RITUAL.

I MEAN, AMERICANS

HAD NEVER BEEN UNITED

BY THIS ANNUAL RESPONSIBILITY

BEFORE, AND SUDDENLY, UH--

IT WAS ACTUALLY IN MARCH, THEN,

BUT WHAT LATER GOT MOVED

TO APRIL-- APRIL 15tH HAS BECOME

SORT OF A NATIONAL

ANTI-HOLIDAY, YOU KNOW?

IT'S A DAY THAT WE ALL RECOGNIZE

AS PART OF OUR CIVIC

RESPONSIBILITIES, AS OUR--

AS OUR-- IN OUR ROLE

AS AMERICANS.

>> Weisman: FOR AS LONG

AS AMERICANS HAVE BEEN DEBATING

THE INCOME TAX,

THEY'VE BEEN DEBATING

TWO DEFINITIONS OF,

UH, MORALITY.

ON THE ONE SIDE IS WHAT I CALL

VIRTUE, WHICH IS THIS IDEA

THAT AMERICANS HAVE

THAT THEIR-- THAT WEALTH

THAT THEY GAIN IS THE RESULT

OF VIRTUOUS BEHAVIOR--

SAVING, INVESTING, HARD WORK,

TAKING RISKS, AND THAT YOU DON'T

WANT A TAX SYSTEM

THAT PUNISHES THAT,

AND THEREFORE, YOU DON'T WANT

TO PUNISH PEOPLE

AS THEY MAKE MORE MONEY.

BUT ON THE OTHER HAND,

AMERICANS BELIEVE

IN ESSENTIAL FAIRNESS,

AND THAT, ESPECIALLY IN A TIME

OF WAR AND SACRIFICE,

YOU HAVE TO HAVE A SYSTEM

THAT'S FAIR AND SUPPORTED

BY EVERYONE, AND THAT SYSTEM

DOES THE OPPOSITE.

THAT SYSTEM WOULD MAKE PEOPLE

WHO HAVE MORE MONEY

PAY TAXES AT A HIGHER RATE.

I THINK MOST OF US WOULD

SYMPATHIZE WITH EITHER

OF THOSE VIEWS,

AND MAYBE WE GO BACK AND FORTH.

I THINK THAT'S PROBABLY TRUE

OF MOST AMERICANS,

BUT AT ANY GIVEN TIME,

ONE OF THE IDEAS IS UPPERMOST.

>> THESE ISSUES, MANY OF WHICH

NOW INVOLVE AN ECONOMIC CONCERN,

WERE OF VIRTUALLY NO CONCERN

UNTIL THE KENNEDY

ADMINISTRATION.

>> ( fanfare )

>> * KENNEDY, KENNEDY

* KENNEDY, KENNEDY, KENNEDY

* KENNEDY, KEN-NE-DY FOR ME

>> Various Voices: KENNEDY!

>> THE FIRST PRESIDENT

OF THE MODERN ERA

TO EMBRACE THE ISSUE

OF THE INCOME TAX

WAS JOHN F. KENNEDY.

>> SUCH A BILL WILL BE PRESENTED

TO THE CONGRESS

FOR ACTION NEXT YEAR.

IT WILL INCLUDE

AN ACROSS-THE-BOARD,

TOP-TO-BOTTOM CUT

IN BOTH CORPORATE

AND PERSONAL INCOME TAXES.

IT WILL INCLUDE

LONG-NEEDED TAX REFORMS

THAT LOGIC AND EQUITY DEMAND,

AND IT WILL DATE THAT

CUT IN TAXES TO TAKE EFFECT

AS OF THE START OF NEXT YEAR,

JANUARY 1963.

>> KENNEDY CAME ALONG

AND HIS TAX ADVISORS

CAME ALONG AND SAID,

"BUT THESE HIGH RATES

RETARD ECONOMIC GROWTH,"

AND THAT BEGAN

THE REAL CONVERSATION

ABOUT THE RELATIONSHIP

BETWEEN TAX RATES

AND ECONOMIC OUTCOMES.

>> HE HADN'T GIVEN OUT

LITTLE INCREASES

IN THE PERSONAL EXEMPTION

OR THE STANDARD DEDUCTION.

HE'D ACTUALLY GONE IN

AND SLASHED THE WORLD WAR TWO

AND KOREAN WAR TAX RATES,

THE MARGINAL RATES,

ACROSS THE BOARD.

HE TOOK THE TOP RATE DOWN

FROM 91% TO 70,

AND THE BOTTOM RATE DOWN

FROM 20 TO 14.

AND WE HAD SEVERAL

GOOD YEARS OF GROWTH

AFTER THE KENNEDY TAX CUTS,

UNLIKE THE LATER CUTS

OF THE 1970s, WHICH WERE

JUST THESE LITTLE HANDOUTS

ON THE FIRST TWO OR THREE

OF FIVE DOLLARS THAT YOU EARNED.

>> Weisman: I THINK IT WAS

REALLY IN THE 1970s

THAT TAXES BECAME A BIG NATIONAL

AND ALMOST MORAL ISSUE.

>> Shaviro: PEOPLE STARTED

GETTING A LOT MORE UNHAPPY

WITH THE GOVERNMENT.

YOU HAVE THE VIETNAM WAR

AND NIXON AND WATERGATE

AND ALL THOSE THINGS.

AND ALSO, IN THE 1970s,

YOU GET INCREDIBLE TAX INCREASES

THAT WEREN'T ACTUALLY ENACTED

BY THE CONGRESS.

IT WAS BECAUSE OF INFLATION.

IT TURNED OUT THAT WHEN

THERE WAS HIGH INFLATION,

PEOPLE WERE BEING PUSHED

INTO HIGHER TAX BRACKETS.

IT MIGHT BE THAT YOU USED

TO PAY TAXES AT 30%.

NOW, YOU REALLY HAVE

THE SAME SPENDING POWER

AS BEFORE, BUT NOW YOU'RE

PAYING SOME TAX AT 40%.

>> SO, WE DECIDED

AT THE END OF THE '70s

THAT WE NEEDED TO TRY

THAT AGAIN-- WE NEEDED

TO REPEAT THE KENNEDY EXPERIMENT

TO SEE IF LOWERING

THE MARGINAL RATES

AND PERHAPS PUTTING ON

THE INVESTMENT TAX CREDIT

THAT HE HAD ALSO USED

TO SPUR INVESTMENT,

MIGHT GET US OUT

OF THE STAGFLATION.

>> AND, OF COURSE, THE MAN

WHO RODE THAT ISSUE

INTO THE WHITE HOUSE

WAS RONALD REAGAN,

WHO I LIKE TO THINK OF

AS THE POET LAUREATE

OF CAPITALISM.

>> Reagan: I'M A CITIZEN.

I'M NOT AN OFFICEHOLDER

OR A PARTY OFFICIAL.

I'LL MAKE A SPEECH

AT A BUS STOP IF ENOUGH

PEOPLE ARE WAITIN'.

I WAS A DEMOCRAT

MOST OF MY LIFE.

I HAVE A LONG PENANCE TO DO.

>> ( laughter )

>> IF YOU'RE UNWILLING

TO MEET THIS CHALLENGE,

THEN YOU'D BETTER START

PREPARING, DECIDING WHAT

YOU'LL TELL YOUR CHILDREN

IT WAS THAT YOU FOUND

MORE IMPORTANT THAN FREEDOM.

THEY'LL WANNA KNOW.

IN THIS PRESENT CRISIS,

GOVERNMENT IS NOT

THE SOLUTION TO OUR PROBLEMS.

GOVERNMENT IS THE PROBLEM.

FROM TIME TO TIME,

WE'VE BEEN TEMPTED TO BELIEVE

THAT SOCIETY HAS BECOME

TOO COMPLEX TO BE MANAGED

BY SELF-RULE,

THAT GOVERNMENT BY

AN ELITE GROUP IS SUPERIOR

TO GOVERNMENT FOR, BY,

AND OF THE PEOPLE.

>> NO ONE BEFORE OR SINCE

HAS, UH, PAINTED SUCH

A VISIONARY PICTURE

OF HOW AMERICANS ARE BURDENED

BY THE TAX SYSTEM.

>> IN SHORT, A PUNITIVE

TAX SYSTEM MUST BE REPLACED

BY ONE THAT RESTORES

INCENTIVE FOR THE WORKER

AND FOR INDUSTRY,

A SYSTEM THAT REWARDS

INITIATIVE AND EFFORT

AND ENCOURAGES THRIFT.

NOW, ALL THESE THINGS

ARE POSSIBLE.

NONE OF THEM WILL BE EASY,

BUT THE CHOICE IS CLEAR.

WE CAN GO ON LETTING

THE COUNTRY SLIP

OVER THE BRINK

OF FINANCIAL RUIN

WITH THE DISASTER WHICH THIS

MEANS FOR THE INDIVIDUAL,

OR WE CAN FIND THE WILL

TO WORK TOGETHER,

TO RESTORE CONFIDENCE

IN OURSELVES

AND TO REGAIN THE CONFIDENCE

OF THE WORLD.

>> Fox: RONALD REAGAN

CAME INTO OFFICE BELIEVING

THAT HIGH TAX RATES

DISCOURAGE ECONOMIC GROWTH

AND DISCOURAGE PEOPLE

FROM WORKING HARDER.

THE CONTEXT FOR HIM

WAS THE MOVIE INDUSTRY.

>> Man: ALL RIGHT, GET ON STAGE,

YOU PRIMA DONNAS. LET'S GO!

GET ON FOR STAGE FOUR...

>> HEY, FELLAS!

GET A LOAD OF THIS WIRE.

>> ANYBODY I KNOW?

>> WE'RE GOING ON TOUR.

WHAT DO YOU KNOW, BOSTON,

PHILADELPHIA, WASHINGTON...

>> WASHINGTON? HEY, WOULDN'T IT

BE SOMETHING IF THE PRESIDENT

CAME TO SEE US,

THE CHIEF HIMSELF?

>> Weisman: HE'D MAKE A CERTAIN

NUMBER OF MOVIES, AND THEN

ANYTIME HE MADE ANOTHER MOVIE,

HE FIGURED THAT 80 OR 90%

OF THE INCOME HE WAS

GETTING FROM THAT MOVIE

WOULD GO TO THE FEDERAL

GOVERNMENT, SO HE WOULD STOP

MAKING MOVIES AND GO OFF

AND RIDE HORSES.

HE JUST BECAME CONVINCED,

BASED ON HIS PERSONAL EXPERIENCE

THAT A HIGH TAX RATE

DISCOURAGES PEOPLE

FROM WORKING HARD

AND-- AND GOING THE EXTRA MILE

TO BE PRODUCTIVE.

AND HE RODE THAT IDEA-- I--

BECAUSE HE BELIEVED IT

AND BECAUSE HE WAS SUCH

A GREAT COMMUNICATOR,

HE RODE IT INTO THE WHITE HOUSE,

AND HE RODE IT INTO THE BRAINS

OF AMERICANS.

>> WE MUST GO FORWARD

WITH A TAX RELIEF PACKAGE.

I SHALL ASK FOR A 10% REDUCTION

ACROSS THE BOARD

IN PERSONAL INCOME TAX RATES

FOR EACH OF THE NEXT

THREE YEARS.

>> Fox: HE WAS THE SPONSOR,

THE SUPPORTER OF

THE ECONOMIC RECOVERY TAX ACT

OF 1981, AND IT'S THE FIRST TIME

THEY GAVE A NAME

TO A TAX REFORM.

>> THE IMPORTANT THING NOW

IS TO HOLD TO A FIRM,

STEADY COURSE.

TONIGHT, I WANT TO TALK WITH YOU

ABOUT THE NEXT STEPS

THAT WE MUST TAKE

ON THAT COURSE,

ADDITIONAL REDUCTIONS

IN FEDERAL SPENDING

THAT WILL HELP LOWER

OUR INTEREST RATES,

OUR INFLATION,

AND BRING US CLOSER

TO FULL ECONOMIC RECOVERY.

>> DAVID STOCKMAN ADMITTED,

WHEN HE WAS THE HEAD

OF THE CONGRESSIONAL BUDGET

OFFICE FOR REAGAN,

WAS THAT IN FIGHTING

FOR LOW TAX RATES, HE EXPECTED

THE REAGAN REVOLUTION ALSO

TO REDUCE GOVERNMENT,

BUT THEY FOUND--

THE REPUBLICANS FOUND--

THAT THE-- THERE WAS TOO MUCH

ENTRENCHED IN THE GOVERNMENT

PROGRAMS, AND SO GOVERNMENT

SPENDING WENT WAY UP.

SO, IT REALLY DIDN'T TEST

SUPPLY-SIDE ECONOMICS

IN THE BEST OF CONDITIONS.

>> REAGAN SOMETIMES GETS CREDIT

FOR MASSIVELY LOWER TAXING,

BUT THAT SHORT PERIOD

BETWEEN '80 AND '84 WERE--

WHEN I WAS HERE--

HE, UH, LOWERED THE TAX RATES,

AND THAT WAS VERY GOOD,

BUT HE ALSO HAD THREE TAX

INCREASES-- SOCIAL SECURITY

TAXES WENT UP,

AND OTHER REVENUES WENT UP,

AND IT WAS ALL CANCELED OUT

AND, UH, SPENDING WENT UP

AND THE DEFICIT EXPLODED.

>> ONE OF THE THINGS

ABOUT REAGAN WAS THAT WHEN HE

WAS CONVINCED THAT WE NEEDED

HIGHER TAXES, HE JUST WENT OUT

AND GAVE A SPEECH.

>> WE'RE WITHIN SIGHT

OF THE SAFE PORT

OF ECONOMIC RECOVERY.

DO WE MAKE PORT

OR GO AGROUND ON THE SHOALS

OF SELFISHNESS, PARTISANSHIP,

AND JUST PLAIN BULL-HEADEDNESS?

THE MEASURE THAT CONGRESS

IS ABOUT TO VOTE ON,

WHILE NOT PERFECT IN THE EYES

OF ANY ONE OF US,

WILL BRING US CLOSER

TO THE GOAL

OF A BALANCED BUDGET,

RESTORED INDUSTRIAL POWER,

AND EMPLOYMENT FOR ALL

WHO WANT TO WORK.

TOGETHER, WE CAN REACH

THAT GOAL.

>> ON A BIPARTISAN BASIS

IN THE SENATE AND THE HOUSE,

PEOPLE REALLY BEGAN TO STUDY

WHAT TAXES DO

THROUGH THE ECONOMY,

HOW PEOPLE CHANGE THEIR BEHAVIOR

IN RESPONSE TO

DIFFERENT TAX POLICIES.

>> Burman: IN THE EARLY '80s,

TAX SHELTERS

WERE REALLY RAMPANT.

THERE WERE STORIES ALL THE TIME

ABOUT RICH DEVELOPERS

WHO BUILT EMPTY OFFICE BUILDINGS

THAT MADE NO SENSE

FROM AN ECONOMIC PERSPECTIVE

BUT SAVED THEM AN ENORMOUS

AMOUNT OF MONEY IN TAXES,

AND PEOPLE SAW THAT

AS JUST A TRAVESTY.

THEY THOUGHT IT WAS UNFAIR

RICH PEOPLE WERE GETTING AWAY

WITH MURDER, AND THEY UNDERSTOOD

THAT THE TAX SYSTEM

WAS UNRAVELING.

>> YOU COULD ACTUALLY SELL

TAX CREDITS-- BUSINESSES

COULD SELL INVESTMENT

TAX CREDITS THEY DIDN'T NEED.

THERE WAS A MARKET

IN THE WALL STREET JOURNAL.

YOU COULD BUY THE RIGHT

NOT TO PAY TAXES.

>> WE HAD A SITUATION

WHERE HALF OF

OUR BIG CORPORATIONS WEREN'T

PAYING ANY TAXES, AND MANY OF

THE OTHER ONES, THE OTHER HALF,

WERE PAYING QUITE A BIT.

>> REAGAN CAME TO BELIEVE

THAT THIS REALLY WASN'T RIGHT,

AND, UH, HE WAS A MAN

OF CERTAIN VERY STRONG

CONVICTIONS.

SO HE SAID TO HIS SECRETARY

OF THE TREASURY IN 1984,

"COME UP WITH A PROPOSAL

THAT VASTLY SIMPLIFIES

THE LAWS, THAT'S FAIR

TO EVERYBODY, THAT DOESN'T

REALLY RAISE MORE REVENUE,

BUT DOES IT IN A SENSIBLE,

ECONOMICALLY SOUND

AND FAIR WAY, AND THAT MAKES

THE TAX LAWS MORE TRANSPARENT."

>> REAGAN DIDN'T PUT A LOT

OF PRECONDITIONS ON IT.

HE SAID, "I WANT LOWER

MARGINAL TAX RATES,

AND I'M GONNA KEEP THE TAX BREAK

FOR MORTGAGE INTEREST."

HE THOUGHT THAT WAS SACROSANCT.

BASICALLY, EVERYTHING ELSE

WAS ON THE TABLE.

>> ONCE TAX REFORM IS OUT THERE,

ANYONE WHO KILLS IT,

THE SAYING WAS,

HE HAS A DEAD CAT

ON HIS DOORSTEP.

ANYONE WHO KILLED TAX REFORM

WAS IMMEDIATELY UNDER SUSPICION,

HAVING DONE IT AS SOME SORT

OF SLEAZY PAYOFF

TO THE INTEREST GROUPS--

WHICH, IT'S TRUE ENOUGH,

HATED IT-- SO REAGAN HAS

THIS RISK OF A DEAD CAT

ON HIS DOORSTEP.

HE-- I THINK HE GENUINELY

BELIEVED AND WANTED TO DO IT,

BUT HE IS SORT OF FORCED

POLITICALLY TO COME UP

WITH A PLAN THAT'S MORE FEASIBLE

THAN THE PURE TREASURY ONE PLAN.

THEN IT GOES TO THE HOUSE,

WHERE-- OF REPRESENTATIVES,

WHERE CONGRESSMAN ROSTENKOWSKI,

THE DEMOCRATIC CHAIR

OF THE WAYS AND MEANS COMMITTEE,

HE HAS TO DO SOMETHING, TOO.

>> ( shouting, cat yowls )

>> THE HOUSE PLAN, ACTUALLY,

THEY RESTORED A LOT

OF THE SPECIAL TAX BREAKS

AND THE RATES WENT BACK UP.

REAGAN ORIGINALLY HAD PROPOSED

A TOP RATE OF 35%.

THE RATE WAS EVEN HIGHER

IN THE HOUSE PLAN,

AND IT-- AND THEY RESTORED

A LOT OF THE SPECIAL TAX BREAKS.

>> IT WAS A TAX REFORM PROPOSAL

THAT DIED, FRANKLY,

LEGISLATIVELY, NUMEROUS TIMES,

AND RONALD REAGAN HAD TO REACH

INTO THE CONGRESS AND SAY,

"NO, WE HAVE TO FINISH

OUR JOB HERE,"

AND WOULD RESURRECT TAX REFORM.

>> Shaviro: THEN IT GOES

TO THE SENATE,

TO SENATOR PACKWOOD

OF THE SENATE FINANCE COMMITTEE.

INITIALLY, I THINK IT'S FAIR

TO SAY HE REALLY HATED IT.

HE CAME AROUND A BIT,

BUT PART OF THE THING

WAS THAT HE WOULD BE

THE ONE WHO KILLED IT.

HE DIDN'T WANNA BE

THE ONE WHO KILLED IT,

SO HE HAD TO DO SOMETHING ELSE.

>> PACKWOOD AND HIS STAFF

CAME UP WITH THE IDEA,

WHAT THEY CALLED

THE 27% SOLUTION.

THEY WOULD TAX CAPITAL GAINS

THE SAME AS OTHER INCOME.

BEFORE THAT, CAPITAL GAINS

HAD ALWAYS BEEN TAXED

AT A LOWER RATE,

AND BY ELIMINATING

A WHOLE HOST OF DEDUCTIONS

AND TAX BREAKS,

AND BY PUTTING A BIG TAX

INCREASE ON CORPORATIONS,

THEY WERE ABLE TO LOWER

THE TOP RATE TO 27%.

WHICH WAS VERY, VERY APPEALING,

AND REAGAN LIKED IT A LOT.

>> McIntyre: SO, WE MANAGED

TO GET A TAX REFORM

THAT WAS A TERRIFIC DEAL

FOR LOW- AND MIDDLE-INCOME

PEOPLE, OVERALL RAISE TAXES

ON CORPORATIONS AND THE WEALTHY,

BUT CUT TAXES

ON ENOUGH WEALTHY PEOPLE

AND ENOUGH CORPORATIONS

TO KEEP THOSE LOBBYING FORCES

AT BAY.

>> Fox: THEY ELIMINATED

ABOUT A THIRD OF ALL

THE SPECIAL RELIEF PROVISIONS.

THEY BROUGHT TAX RATES DOWN

FOR EVERYBODY.

ONLY... PEOPLE SAID,

"NOT GONNA LAST,"

BECAUSE PROVIDING TAX RELIEF

IS SO MUCH A PART

OF THE POLITICAL CAMPAIGNS.

"WHAT CAN I OFFER PEOPLE

THAT WILL MAKE THEM THINK

I'M FOR THEM?"

>> ( G.H.W. Bush speaking )

>> ( cheering )

>> ( Clinton speaking )

...THE OLD-FASHIONED WAY.

>> ( G.W. Bush speaking )

>> ( Obama speaking )

...UNDER MY PLAN...

>> ( cheering )

>> BY THE ELEMENTS ALONE,

THEY WILL GROW TO MILLIONS

OF TIMES THEIR ORIGINAL SIZE

IN LESS TIME THAN IT TAKES

FOR THE SUN TO RISE AND FALL.

>> Mitchell: THE TAX SYSTEM

HAS BECOME A BIT OF A PLAYPEN

FOR POLITICIANS

OF BOTH PARTIES.

WHETHER THEY'RE REPUBLICANS

OR DEMOCRATS, IT SEEMS LIKE

FOR EVERY REAL OR IMAGINED

PROBLEM IN THE COUNTRY,

SOME POLITICIAN HAS AN ANSWER

THAT INVOLVES MORE COMPLICATION

OF THE TAX CODE.

>> WHAT YOU ARE LOOKING AT NOW

USED TO BE A GREAT CITY.

THAT WAS LONG AGO.

>> GEE!

>> IT'S THE HOME

OF MONSTERS NOW.

>> OUR TAX SYSTEM, IN THE WAY

IT'S USED BY GOVERNMENT,

IT'S BASICALLY

A VOTE-BUYING SYSTEM.

IT IS USED TO CURRY FAVOR

WITH VOTERS.

>> Burman: POLITICIANS

IN BOTH PARTIES HAVE COME

TO SEE THE INCOME TAX

AS A KIND OF CHRISTMAS TREE

FULL OF GOODIES THEY CAN

GIVE AWAY FOR ONE CONSTITUENCY

OR ANOTHER, AND THERE'S BEEN

THIS BIPARTISAN CONSENSUS

THAT THE WAY TO PANDER

TO THE ELECTORATE

IS BY CREATING NEW TAX CREDITS

TARGETED AT PARTICULAR GROUPS.

>> ( growls )

>> IT'S THAT MONSTER AGAIN!

>> AND WE CAN CONTROL

HIS ACTIONS, DON'T WORRY.

>> WHY THE TAX CODE?

WHY NOT JUST SEND THE MONEY

OUT IN A CHECK?

WELL, THINGS GET HIDDEN

IN THE TAX CODE,

AND YOU GET CREDIT

FOR TWO THINGS WHEN YOU PUT

A SUBSIDY-- A SPECIAL

TAX BREAK INTO THE TAX CODE.

A), YOU GET CREDIT

FOR THE SUBSIDY,

AND B), YOU'VE CUT TAXES.

SO YOU DIDN'T INCREASE

GOVERNMENT SPENDING,

YOU CUT TAXES,

AND, WOW, THAT'S A TWOFER.

>> I DON'T UNDERSTAND.

WHY DO YOU HAVE

SUCH MONSTERS ANYWAY?

YOU'RE SO ADVANCED AND ALL.

>> Sheppard: CONGRESSPEOPLE

HAVE TO LOOK LIKE

THEY'RE DOING SOMETHING.

THERE'S-- THE WHOLE IMPETUS

IN WASHINGTON IS TO,

YOU KNOW, AS BILL CLINTON

USED TO PUT IT,

FEEL YOUR PAIN, YOU KNOW?

"LET'S GIVE 'EM

A LITTLE TAX CREDIT FOR IT,

AND IT'S NOT GONNA MAKE

A DENT IN THE REAL PROBLEM,

BUT IT'S GONNA LOOK LIKE

WE'RE DOING SOMETHING."

>> WELL, NOW, WHERE DO YOU THINK

THIS COUNTRY WOULD BE

WITHOUT POLITICIANS?

DO YOU THINK THAT THE AVERAGE

CITIZEN WOULD TAKE TIME OFF

TO HELP RUN THE COUNTRY?

>> THERE ARE MANY WHO WOULD.

>> AHH! ALL THE AVERAGE CITIZEN

THINKS ABOUT IS MAKING MONEY.

HE'S GOT NO TIME FOR POLITICS.

>> THE PUBLIC IS BEING TAUGHT

THAT TO PAY TAXES IS PAINFUL.

THAT'S WHY YOU NEED,

QUOTE, RELIEF.

IT'S AN AFFLICTION,

AND IF YOU CAN MITIGATE

THAT IN SOME WAY,

IF POLITICIANS CAN OFFER YOU

JUST SOME MORE RELIEF FROM THAT,

YOU'LL BE BETTER OFF.

>> WE FOUND, TO OUR REGRET,

THAT IT MADE UNCONTROLLABLE

MONSTERS, AS WELL.

>> THE TAX SYSTEM HAS NOW

GOTTEN TO THE POINT

WHERE CONGRESS USES

THE TAX SYSTEM

THE WAY MY MOTHER

USED CHICKEN SOUP.

IT'S A CURE-ALL FOR ANY ILL

AFFECTING SOCIETY

OR THE ECONOMY.

>> Burman: YOU COULD PICK

ALMOST ANY PROGRAM AREA

YOU WANT-- THERE'S A TAX PROGRAM

THAT LOOKS BASICALLY

LIKE A GOVERNMENT PROGRAM

RUN BY AN AGENCY,

BUT IT'S RUN BY

THE IRS, INSTEAD.

>> YOU KNOW, THE LITTLE CREDITS

FOR THIS AND THAT ARE OFFENSIVE

BECAUSE THEY DON'T WORK.

YOU KNOW, THEY COST MONEY,

AND THEY DON'T WORK.

THAT'S NOT A GOOD COMBINATION.

>> ( screaming )

>> THE GENERAL PRINCIPLE,

I THINK, YOU DERIVE

FROM MOST TAX RELIEF

IS THAT THE MOST RELIEF

GOES TO PEOPLE

WHO NEED IT THE LEAST;

THE LEAST RELIEF GOES TO PEOPLE

WHO NEED IT THE MOST.

>> SURVEY SHOWS AMERICAN PEOPLE

TODAY BETTER HOUSED

THAN ANY PEOPLE IN HISTORY.

WHEN I FIRST READ THAT

ON THE RELEASE, I THOUGHT

TO MYSELF, "THEY CALL THAT NEWS?

EVERYONE KNOWS THAT!"

>> Fox: NOW, I WRITE

AND HAVE TALKED A LOT ABOUT

HOW THE HOME MORTGAGE

INTEREST DEDUCTION

IS SOMETHING SACRED.

I MEAN, IT'S A THIRD RAIL.

NO CANDIDATE IS GOING TO SAY

THAT WE OUGHT TO ELIMINATE IT

OR GREATLY CURTAIL IT.

I THINK THAT THE QUESTION

THAT YOU'D ASK

FOR THE HOME MORTGAGE INTEREST

DEDUCTION IS THE QUESTION

YOU'D ASK FOR ALL RELIEF:

WHY IS IT THERE?

>> THE PROOF OF THE PUDDING

IS IN THE EATING, AS THEY SAY,

AND THAT PARTICULAR KIND

OF PUDDING TASTES

RIGHT NICE TO US.

>> IN 2006, THE BOTTOM 52%

OF ALL TAXPAYERS, OVER 50%,

THEY GOT JUST 2%

OF THAT 66 BILLION.

THE TOP 3% GOT ABOUT 30%.

WELL, CAN YOU IMAGINE

IN THIS SENATE FINANCE COMMITTEE

HEARING SAYING, "WE ARE NOW

ANNOUNCING" JUST THAT OUTCOME?

"WE'RE GONNA GIVE 30%

TO THE TOP THREE OF YOU,

AND THE OTHER 52%,

WHY DON'T YOU JUST GET

OUT OF THE MEETING?

GO HOME, 'CAUSE WE DON'T CARE

TO HELP YOU BECOME HOMEOWNERS,"

AND THAT WOULD BE OUTRAGEOUS.

IT COULDN'T HAPPEN,

BUT IT DOES HAPPEN

IN THE TAX LAWS, AND SO MANY

OF THOSE THINGS OCCUR

BECAUSE IT'S NOT TRANSPARENT.

AND POLITICIANS

DON'T WANT TO TALK ABOUT IT,

BECAUSE THEY TALK ABOUT

HOW MARVELOUS IS IT

TO HELP YOU OWN A HOME.

>> Man: HOMES THAT ARE

THE FINEST THAT CAN BE HAD

FOR THE MEANS

AND THE MODE OF LIFE

OF THOSE WHO LOVE, HOPE,

SLEEP, WORK, EAT...

YES, LIVE IN THEM

FOR AMERICA.

>> THE CHILDCARE CREDIT.

I MEAN, CHILDCARE

IS EXPENSIVE FOR EVERYBODY.

IT'S INCREDIBLY EXPENSIVE.

YOU HAVE TO-- IF YOU HAVE

ONE CHILD, LET ALONE

TWO CHILDREN IN CHILDCARE...

AND SO CONGRESS ENACTED

A CHILDCARE CREDIT.

WELL, WHO GETS IT?

WELL, YOU ONLY GET A CREDIT,

WHICH IS A DOLLAR-FOR-DOLLAR

CREDIT AGAINST YOUR TAXES--

IT OFFSETS A DOLLAR OF TAXES--

IF YOU OWE TAXES.

BUT LISTEN TO THIS--

AND IT JUST SEEMS SO STRIKING,

THE UNFAIR--

IF YOU EARN HUNDREDS

OF THOUSANDS, OR MILLIONS

OF DOLLARS, AND YOU HAVE

TWO KIDS IN CHILDCARE

AND YOU'RE THE EXECUTIVE

OF SOME TOP COMPANY,

YOU GET THE $1200 TAX CREDIT.

IF YOU EARN $25,000

AND YOU DON'T OWE INCOME TAXES,

YOU DON'T GET ANY HELP,

YET YOU'RE THE ONES

WHO NEED THE HELP THE MOST.

>> THAT'S THE KIND OF BUSINESS

WE LIKE.

>> THESE ARE OUTCOMES

THAT, IF THEY DON'T MAKE

SOCIAL SENSE, IF THEY DON'T

MAKE ECONOMIC SENSE,

AND THEY DRIVE UP TAX RATES,

WE OUGHT TO SAY

TO OUR POLITICIANS,

AND I'M ASKING THEM, "WHY?"

>> ALL RIGHT, ALL RIGHT,

HOLD OFF THE QUESTIONS.

>> WHY THE MYSTERY, BILL?

>> RIGHT NOW WE HAVE TAX CREDITS

FOR BABY-SITTERS,

TAX CREDITS FOR COLLEGE,

YOU KNOW, TAX CREDITS FOR KIDS,

AND, YOU KNOW, THIS IS

THE KIND OF JUNK

THAT MAKES THE TAX CODE

TENS OF THOUSANDS

OF PAGES LONG.

IT'S THE KIND OF JUNK

THAT CREATES THE FIELD DAY

FOR THE POLITICIANS

AND THE TAX LAWYERS

TO PLAY THEIR GAMES.

>> IT'S JUST NOT CLEAR

THAT YOU SHOULD REALLY

BE USING THE TAX SYSTEM

TO ENCOURAGE HOME OWNERSHIP,

OR ANYTHING ELSE LIKE THAT.

>> THE TAX SYSTEM

SHOULD RAISE REVENUE

AND THEN TRY TO DO

AS LITTLE ELSE AS POSSIBLE,

BECAUSE ALMOST EVERYTHING ELSE

THAT IT DOES IS HARMFUL.

>> BUT WHAT PEOPLE DON'T REALIZE

IS WHILE THE FEDERAL GOVERNMENT

SPENDS THREE TRILLION

A YEAR, ROUGHLY,

IN DIRECT SPENDING PROGRAMS,

IT ALSO SPENDS INDIRECTLY

$1 TRILLION A YEAR

IN TAX PREFERENCES.

BY THAT I MEAN

THE FEDERAL GOVERNMENT FORGOES

RECEIVING REVENUES

OF ABOUT $1 TRILLION A YEAR

BECAUSE OF DEDUCTIONS,

CREDITS, EXEMPTIONS,

AND EXCLUSIONS IN THE TAX CODE.

>> WHAT HAPPENS TO THE AVERAGE

PERSON IS, IF YOU LOOK

AT THE HUNDREDS,

IF NOT THOUSANDS

OF SPECIAL PREFERENCES

IN THE TAX CODE,

I BET EVERY SINGLE PERSON

WATCHING THIS BENEFITS

FROM ONE OR TWO

OF THOSE SPECIAL PREFERENCES,

AND THEY THINK, "WE'D BETTER

KEEP THE SYSTEM IN PLACE,

BECAUSE I BENEFIT FROM--

FROM LOOPHOLE 'A'

AND LOOPHOLE 'G.'"

WELL, WHAT THEY DON'T REALIZE

IS THAT THEIR NEIGHBORS

ARE BENEFITTING

FROM LOOPHOLE "E"

AND LOOPHOLE "L,"

AND THEN THE NEIGHBOR

ON THE OTHER SIDE

IS BENEFITTING

FROM LOOPHOLE "W"

AND LOOPHOLE "C."

AND SO EVERYONE IS,

IN SOME WAY, HAS THEIR SNOUT

IN THE TROUGH OF SPECIAL

INTEREST TAX PROVISIONS,

BUT WHAT DOES THAT MEAN?

AT THE END OF THE DAY,

THE RATE IS HIGHER

ON ALL OF US

ON THE INCOME THAT IS TAXED.

>> YOU SEE THAT ALMOST HALF

OF ALL INCOME THAT INDIVIDUALS

COULD BE TAXED ON

WILL NOT BE TAXED.

AND PROBABLY PEOPLE WATCHING

THIS WILL SAY, "WELL, JOHN,

THAT'S FABULOUS."

BUT THERE ARE CONSEQUENCES.

THE FIRST CONSEQUENCE

IS THAT THERE'S REALLY

A CLOSE RELATIONSHIP

BETWEEN TAX RATES

AND WHAT CAN BE TAXED.

SO, IF ONLY HALF

OF ALL INCOME CAN BE TAXED,

PEOPLE HAVE TO PAY

MUCH HIGHER TAX RATES

THAN THEY WOULD OTHERWISE.

>> WOULDN'T YOU RATHER

GIVE UP 50 CENTS OF LOOPHOLES

FOR A DOLLAR OF LOWER TAX RATES?

THAT'S, IN EFFECT,

WHAT TAX REFORM IS ALL ABOUT.

>> SIMPLIFYING THE TAX LAWS,

MAKING SENSE OF

THE TAX LAWS,

THERE ISN'T A POLITICIAN

WHO WON'T TELL YOU

THAT THEY'RE FOR IT,

AND THEN THEY'LL GO OUT

AND SAY, "AND WHAT I'M OFFERING

NOW IS A CREDIT HERE,

AN ADDITIONAL DEDUCTION HERE."

NOBODY WANTS TO ELIMINATE

THE RELIEF THAT'S ALREADY THERE.

ALMOST NO ONE.

SO, THE POLITICIANS

ALL ARE FOR DECENCY,

HONESTY IN THE TAX SYSTEM,

SIMPLIFICATION, TRANSPARENCY...

YOU'LL HEAR THAT, AND YOU'LL

SAY, "OH, THAT'S SOMEBODY

I'M IN FAVOR OF,"

BUT WHEN IT COMES DOWN

TO ACTUALLY DEPRIVING ANYBODY

OF THESE PROVISIONS,

IT'S VERY HARD TO GET THEM

TO DO IT.

>> REPORT PRELIMINARY FINDINGS.

>> IN HIS SECOND TERM,

PRESIDENT BUSH SAID

THAT ONE OF HIS OBJECTIVES

WAS TO SIMPLIFY THE TAX CODE

FOR VERY GOOD REASONS--

THE BURDEN IS GREAT

ON THE TAXPAYER.

>> G.W. Bush: UH, I AM...

FIRM IN MY DESIRE

TO GET SOMETHIN' DONE.

WE'RE GONNA TAKE THEIR WORK,

AND WE'LL GO TO THE CONGRESS

AND SAY, "LET'S WORK TOGETHER

TO ACHIEVE SOMETHING, UH,

VERY CONSTRUCTIVE

FOR THE AMERICAN PEOPLE."

>> UNFORTUNATELY, OTHER

PRIORITIES TOOK THE PLACE

OF THAT, AND THE PRESIDENT

WAS, INSTEAD, YOU KNOW,

AT THAT POINT, PREOCCUPIED

WITH THE SOCIAL SECURITY REFORM,

WHICH DIDN'T-- DIDN'T--

DIDN'T GO OVER SO WELL.

>> WELL, THAT'S THE STORY

ON THAT PARTICULAR PROJECT.

>> THESE POLITICIANS

DON'T WILLING GIVE UP POWER.

THEY'RE NOT GOING TO

GIVE UP THE POWER THEY HAVE

UNDER OUR CURRENT TAX CODE.

>> IF ONLY THERE WERE

MORE POWER, BETTY!

>> IS THERE ANY WAY

TO GENERATE MORE POWER?

WE'VE GOT TO HAVE MORE!

>> ( screeching )

>> POLITICS HAS SCREWED UP

ALL EFFORTS TO, UH,

DO TAX SIMPLIFICATION.

I MEAN, YOU KNOW, I PERSONALLY

DEFINE POLITICS

AS A CURIOUS FORM

OF JUVENILE DELINQUENCY.

>> ( blows landing )

>> WELL, WHAT HAPPENS

WHEN YOU TRY TO PUSH

A GOOD IDEA THROUGH

THE LEGISLATIVE PROCESS,

EVERYBODY-- EVERY POLITICIAN

SAYS IN SO MANY WORDS,

"WHAT'S IN IT FOR ME, OR PEOPLE

THAT ARE SIGNIFICANT TO ME,

LIKE MY CAMPAIGN CONTRIBUTORS?"

>> SAY, WHAT THEY TEACHING YOU

UP AT THAT YANKEE UNIVERSITY,

BAD MANNERS?

>> THE SPECIAL INTEREST GROUPS

AND THE POLITICIANS HAVE

A VERY COZY RELATIONSHIP

WHERE THEY GET TO EXCHANGE

CAMPAIGN CASH

FOR SPECIAL INTEREST LOOPHOLES,

AND THAT'S A GAME

THAT THE AMERICAN PEOPLE LOSE,

BUT IT'S THE SPECIAL INTEREST

GROUPS AND THE POLITICIANS

THAT WIN.

>> THE RHETORIC IS ALWAYS THERE

TO HELP THE PEOPLE, AH,

STICK IT TO ONE GROUP

VERSUS THE OTHER,

CLASS WARFARE,

THAT SORT OF THING--

THAT'S ALL THEY TALK ABOUT,

BUT IT'S ALL POLITICS.

>> DON'T RILE ME, BOY.

DON'T RILE ME.

>> WE HAVE 35,000 LOBBYISTS

IN WASHINGTON WHOSE SOLE JOB

IS MOSTLY TO GET

A TAX BREAK FOR THEIR EMPLOYERS.

>> WHAT PEOPLE WILL DO

WILL BE TO LOBBY

FOR VERY, VERY NARROW BENEFITS,

YOU KNOW, A PARTICULAR EXEMPTION

FOR A PARTICULAR PRODUCT,

OR A PARTICULAR EXEMPTION

FOR SOMETHING THAT IS

MANUFACTURED IN A CERTAIN WAY,

OR A PARTICULAR EXEMPTION

FOR RESEARCH.

>> A BUSINESS CAN COME IN

AND MAKE A BIG DONATION

TO A MEMBER OF CONGRESS,

AND HE'LL HEAR THEM OUT

ABOUT PARTICULAR THINGS

THEY WAY, VERSUS

SOME OTHER BUSINESS

OR A LABOR UNION

OR A NONPROFIT,

EVEN CHURCH GROUPS AND OTHERS.

>> YEAH, MAC, FOR FIVE Gs,

IT'S IN THE BAG.

>> IF YOU HAVE ENOUGH LOBBYISTS

IN WASHINGTON SO THAT THERE

ARE 70 LOBBYISTS

FOR EVERY MEMBER OF CONGRESS...

I THINK MOST AMERICAN CITIZENS

UNDERSTAND AS THEY SIT

AT THE DINNER TABLE AT NIGHT,

"MAN, I'M GROSSLY OUTMANNED

UP THERE."

>> NOW, I HAD OBSERVED

THE PROCESS OF MEMBERS

SEEKING COMMITTEE ASSIGNMENTS

FOR A LOT OF YEARS,

AND PARTICIPATED IN THE PROCESS.

I DON'T RECALL EVER HAVING HAD

A MEMBER COME TO ME

AND SAY, "DICK, I WANT TO BE

ON WAYS AND MEANS

BECAUSE I'M INTERESTED

IN THE TAX CODE."

IT WAS, "I WANNA BE

ON WAYS AND MEANS

BECAUSE IT'S AN EXCELLENT

COMMITTEE FROM WHICH

TO RAISE THE FUNDS

FOR MY CAMPAIGN."

SAME WITH SENATE FINANCE.

WELL, HOW DO YOU RAISE FUNDS?

YOU, IN FACT, PEDDLE TAX FAVORS.

>> ( calling auction )

>> ( man shouts )

>> "WE'LL GET THIS CAMPAIGN

HELP FOR YOU,

WE'LL DO THAT FOR YOU,

WE'LL DO THIS FOR YOU.

YOU'VE GOTTA, UH, YOU'VE GOTTA

HELP MY CLIENT OUT

WITH THIS LITTLE TAX PROBLEM

THEY'RE HAVING."

WE HAVE TAX EXEMPTIONS

FOR SPECIFIC MANUFACTURERS

OF CEILING FANS.

>> I CAN'T GET IT OUT

OF MY MIND, JAMES.

WE'RE CROOKS.

>> ( chuckles )

YOU TALK AS IF

YOU'RE JUST FINDING THAT OUT.

>> AS LONG AS WE'RE ELECTING

PEOPLE AND THEY'VE GOT FRIENDS

WHO HELP THEM GET ELECTED,

AND THEY'VE GOT FRIENDS

WHO ARE GIVING THEM MONEY,

OR GIVING THEM JOBS

AFTER THEY LEAVE,

THERE ARE ALWAYS GONNA BE

REASONS WHY LAWMAKERS WANT

TO DO FAVORS FOR CERTAIN PEOPLE.

SOMETIMES THEY'RE GOOD REASONS.

SOMETIMES THEY WANT

TO HELP AN INDUSTRY.

SOMETIMES THEY WANT TO HELP

A COMPANY THAT'S

IN THEIR DISTRICT-- I MEAN,

THESE ARE GOOD REASONS,

BUT ALL OF THAT LEADS THEM

TO CLUTTER UP THE TAX CODE.

>> WE HAVE A BULLETIN

JUST RECEIVED.

ACCORDING TO A REPORT

NOT YET CONFIRMED,

A BEAST OF SEEMINGLY

GIGANTIC PROPORTIONS

HAS BEEN SIGHTED

LURKING IN THE HILLS

DUE NORTHEAST OF TOWN.

>> ( gavel strikes )

>> WE'LL COME TO ORDER.

UM, I'M COMMITTED TO, UM,

DO ALL WE POSSIBLY CAN,

THIS COMMITTEE, THIS YEAR,

TO SET THE STAGE

FOR SIGNIFICANT TAX REFORM.

MY-- I BELIEVE THAT VIRTUALLY

NO ONE IN THE CONGRESS

HAS A SUFFICIENT GRASP

OF THE CODE.

>> THERE'S A DOZEN PROPOSALS

THAT HAVE BEEN INTRODUCED

INTO CONGRESS--

I'M NOT GONNA NAME

THE SPONSORS-- TO REVAMP

OR REFORM THE TAX CODE,

INCLUDING PROPOSALS

FOR A FAIR TAX, FLAT TAX...

>> THERE SEEMS TO BE

A CONSENSUS GATHERING

THAT WE NEED, QUOTE, TAX REFORM.

THERE IS NOT A CONSENSUS,

HOWEVER, ABOUT WHAT THAT MEANS.

>> HOW, AS WE MOVE FORWARD

WITH, UH, THE DISCUSSION

ON TAX REFORM, UH,

SHOULD WE FACTOR IN

THE, UH, NEED FOR US,

AS A GOVERNMENT,

TO BE FISCALLY, UH, RESPONSIBLE?

>> "HOW DO WE MOVE

TO ANY OF THESE SYSTEMS

WHEN MANY OF THEM WOULD DO AWAY

WITH THE POPULAR EXEMPTIONS

AND DEDUCTIONS,

SUCH AS THE DEDUCTIONS

FOR MORTGAGE INTEREST PAYMENTS?"

>> JUST, ALL THINGS BEING EQUAL,

IS THERE A-- TEND TO BE

A MORE EFFICIENT WAY

TO RAISE REVENUE...

UM, COMPARED WITH OTHER WAYS?

>> AS YOU SAID, MR. CHAIRMAN,

OUR TAX SYSTEM IS BADLY BROKEN.

NO ONE QUARRELS WITH THAT.

YOU MENTION THE TRAIN WRECK

COMING IN 2010.

>> I'M SORRY, I'M GONNA HAVE

TO CLOSE THIS HEARING DOWN.

WE'RE WAY LATE FOR A VOTE.

MEETING'S ADJOURNED.

>> Burman: A LONG-STANDING ISSUE

IN TAX POLICY IS WHETHER

YOU SHOULD TAX INCOME--

HOW MUCH PEOPLE PRODUCE,

OR CONSUMPTION--

HOW MUCH THEY SPEND,

AND THERE'S BEEN A PHILOSOPHICAL

DEBATE THAT'S GONE BACK

TO HOBBES AND LOCKE

AND PHILOSOPHERS

HUNDREDS OF YEARS AGO.

>> YES, IT'S AMAZING

WHEN YOU STOP AND THINK

ABOUT IT.

>> AMERICANS HAVE BEEN

SCHIZOPHRENIC IN THE WAY

THAT WE GO ABOUT TAXES.

AT SOME TIMES, WE WANTED

TO JUST TAX THE CONSUMPTION--

THAT IS, THE SALE OF THINGS--

AND OTHER TIMES, WE WANT

TO TAX JUST INCOME.

AT OTHER TIMES, WE WANT

TO TAX SAVINGS,

OR THE RETURN TO INVESTMENT

THROUGH CAPITAL GAINS

AND DIVIDENDS,

AND WHAT IT'S COME DOWN TO NOW

IS THAT WE JUST BASICALLY

TAX EVERYTHING.

>> Shaviro: EVER SINCE

THERE'S BEEN A TAX, THE PHRASE

"TAX REFORM" HAS BEEN

VERY POPULAR.

HOW CAN YOU BE AGAINST IT?

TO AN EXTENT, EVERYONE

WILL DEFINE TAX REFORM

AS "WHAT I WANT,

THAT'S TAX REFORM."

>> NOW, NONE OF LIKE

CRYSTAL-GAZING, SO LET'S

TAKE A LOOK AT WHAT IS

ACTUALLY HAPPENING NOW.

>> WE DO HAVE A TAX SYSTEM TODAY

WHICH IS A HYBRID.

WE CALL IT AN INCOME TAX,

AND THAT'S KIND OF FUNNY,

BECAUSE IT'S NOT.

IT'S ABOUT ONE THIRD INCOME TAX,

ONE THIRD CONSUMPTION TAX,

ONE THIRD NEITHER.

>> Burman: CONSUMPTION, SPENDING

IS BASICALLY JUST THE DIFFERENCE

BETWEEN THE AMOUNT YOU EARN

AND THE AMOUNT YOU SAVE

AND THE AMOUNT YOU PAY IN TAXES,

BUT UNDER OUR CURRENT INCOME TAX

THERE ARE A LOT OF WAYS

IN WHICH YOU CAN BASICALLY

GET A DEDUCTION FOR SAVINGS,

SO IT'S MOVING IN THE DIRECTION

OF A CONSUMPTION TAX.

SO, IF YOU PUT MONEY

INTO YOUR HOUSE, YOU GET

TO DEDUCT THE MORTGAGE INTEREST.

IF YOU PUT MONEY INTO AN IRA

OR INTO A 401(k),

OR YOUR EMPLOYER PUTS MONEY

INTO A PENSION,

THAT'S NOT INCLUDED

IN YOUR INCOME.

SO, AGAIN, THAT'S THE SAME KIND

OF TAX TREATMENT AS YOU GET

UNDER A CONSUMPTION TAX.

>> YOU MUST UNDERSTAND.

>> EVERY ECONOMIST WILL TELL YOU

THAT MANY WILL FAVOR

A CONSUMPTION TAX.

BUT IF YOU HAVE AN INCOME TAX

WHICH DOESN'T TRY TO DO

ALL OF THE MANIPULATING

OF THE WAY IN WHICH WE BEHAVE,

STAYS OUT OF IT,

AND IT LETS THE MARKETS,

YOU KNOW, PRETTY MUCH CONTROL

THOSE THINGS, THAT WE'D HAVE

A STRONGER ECONOMY.

THAT MEANS HIGHER WAGES,

MORE SAVINGS, MORE INVESTMENT,

STRONGER COMPANIES, MORE--

MORE COMPANIES THAT CAN

COMPETE INTERNATIONALLY.

THAT'S A HUGE ADVANTAGE.

>> EVERYONE IN THE POLICY WORLD

WOULD PREFER A BROAD-BASED,

LOW-RATE INCOME TAX

TO ONE LIKE WHAT WE HAVE NOW,

BUT NONETHELESS, TAX REFORM

HAS KIND OF BEEN CONVERTED

INTO... IT'S NOW PREDOMINATELY

IDENTIFIED WITH

HAVING A CONSUMPTION TAX.

>> NOW, THERE ARE MANY WAYS

YOU CAN GO ABOUT CREATING

A CONSUMPTION-BASED TAX.

>> ONE EXAMPLE OF

A CONSUMPTION-BASED TAX

IS TO HAVE A NATIONAL SALES TAX,

BUT A FLAT TAX,

AT LEAST PROPERLY DEFINED,

IS ALSO A CONSUMPTION-BASED TAX.

>> THERE'S MORE TO IT

THAN THAT, JOE.

THERE'S SOMETHING BEHIND THIS,

SOMETHING WE DON'T UNDERSTAND.

>> CERTAIN TYPES OF INCOME,

CAPITAL INCOME IN PARTICULAR,

DON'T GET TAXED

UNDER A CONSUMPTION TAX,

AND THAT WILL LEAVE

CERTAIN PEOPLE

WITH MUCH LOWER TAX BILLS.

MUCH, MUCH LOWER TAX BILLS.

RICH PEOPLE WILL PAY

CONSIDERABLY LESS,

UNLESS THE SYSTEM

IS DESIGNED CAREFULLY.

>> HA! WHAT AN IMAGINATION.

>> RIGHT. THAT'S JUST WHAT

IT TAKES MOST OF ALL,

CREATIVE IMAGINATION.

>> THE ADVANTAGE OF TAXING

SPENDING RATHER THAN INCOME

IS THAT IT'S THOUGHT

TO BE MORE EFFICIENT.

IT ENCOURAGES YOU TO SAVE.

THE CURRENT TAX SYSTEM

BASICALLY DISCOURAGES SAVING,

AND THERE'S NOT ANY PARTICULAR

REASON WE WANT PEOPLE TO SAVE

LESS THAN THEY WOULD OTHERWISE.

AND IF YOU LOOK AT

THE HORRIBLY ANEMIC SAVINGS RATE

IN THE UNITED STATES,

IT CERTAINLY WOULD BE

A GOOD IDEA TO RAISE IT.

RIGHT NOW, IT'S AROUND ZERO.

>> WHEN WE RETURN

POWER TO THE PEOPLE,

OPPORTUNITY TO THE AMERICAN

PEOPLE, RESPONSIBILITY

TO THE AMERICAN PEOPLE,

THIS NATION IS GONNA MOVE AHEAD

IN A WAY THAT'LL ASTOUND

OURSELVES AND THE WORLD.

REST UP, BECAUSE, MY FRIENDS,

OUR JOURNEY HAS JUST BEGUN.

SO, I RAN FOR PRESIDENT

IN BOTH 1996 AND 2000

ON THE FLAT TAX.

FORTUNATELY, THE MESSAGE

DID BETTER THAN THE MESSENGER.

UNDER THE PROPOSAL

THAT I HAD, FOR EXAMPLE,

YOU'D HAVE A SINGLE RATE,

17%, THAT WOULD APPLY

AFTER GENEROUS EXEMPTIONS

FOR ADULTS AND FOR CHILDREN,

AND THERE'D BE NO TAX

ON YOUR SAVINGS.

EVERYTHING WOULD BE TAX-FREE

ON YOUR SAVINGS, AND THERE'D

BE NO DEATH TAX.

I THINK YOU SHOULD BE ALLOWED

TO LEAVE THE WORLD

UNMOLESTED BY THE IRS.

YOU PAID ENOUGH

DURING YOUR LIFETIME,

OR AS OUR FOUNDERS WOULD SAY,

"NO TAXATION

WITHOUT RESPIRATION."

>> YOU EARN YOUR INCOME,

YOU REPORT YOUR INCOME,

YOU DEDUCT

YOUR FAMILY ALLOWANCE,

YOU APPLY THE RATE,

AND YOU'RE DONE.

>> THE PERKS OF THE FLAT TAX

IS IT UNLEASHES PEOPLE'S MINDS,

THINKING, CREATIVITY,

ONTO PRODUCTIVE PURSUITS.

INSTEAD OF SPENDING

SIX BILLION HOURS, YOU COULD--

A YEAR WITH FILLING OUT FORMS,

YOU COULD WASTE THE TIME.

THAT WOULD BE MORE PRODUCTIVE

THAN, YOU KNOW, LET

THE BRAIN REGENERATE.

>> IT JUST DOESN'T TAKE

MUCH TIME TO EXPLAIN

THE FLAT TAX.

IT'S JUST THERE.

THAT'S IT, MAN.

THAT'S ABOUT IT.

ANYBODY CAN DO IT.

>> ( cheering )

>> AND I ENDORSE THE FAIR TAX,

BECAUSE IT'S THE BEST HOPE WE

HAVE OF FINALLY CHANGING

THE TAX SYSTEM IN THIS COUNTRY.

>> Boortz: THERE WAS THIS GROUP

OF BUSINESSMEN

IN HOUSTON, TEXAS.

THEY JUST HAD THIS LITTLE--

CALL IT A GAME, IF YOU WANT,

I DON'T KNOW, BUT THEY WOULD

TACKLE PROBLEMS.

>> TWO OTHER FELLOWS AND MYSELF

WERE HAVING LUNCH,

AND IN OUR USUAL WAY,

WE WERE COMPLAINING

ABOUT THE STATE OF AFFAIRS

IN THE COUNTRY.

>> AND THEY SAID, OKAY,

WE'RE GOING TO NOW HIRE

COMPLETELY IMPARTIAL EXPERTS,

AND WE'RE GONNA ASK THEM

TO COME UP WITH A NEW WAY

OF COLLECTING REVENUE

FOR THE FEDERAL GOVERNMENT.

>> WE ENDED UP TAKING TWO YEARS

AND $23 MILLION, UH,

TO COMPLETE THIS STUDY,

OUT OF WHICH CAME

THE FAIR TAX.

>> WE STOP TAXING INCOME,

AND START TAXING CONSUMPTION.

>> Boortz: YOU GET RID OF ALL

CORPORATE INCOME TAX. GONE.

NO PERSONAL INCOME TAXES.

IT'S GONE.

PAYROLL TAXES. GONE.

ESTATE TAX, DEATH TAX. GONE.

CAPITAL GAINS TAXES. GONE.

AND ALL OF THIS IS REPLACED

BY ONE EMBEDDED FEDERAL

RETAIL SALES TAX.

>> WHEN YOU BUY SOMETHING NEW

AT THE RETAIL LEVEL,

YOU PAY THE TAX. YOU KNOW

EXACTLY WHAT YOU'RE PAYING.

>> IF YOU BUY USED GOODS

AND SERVICES-- A USED HOUSE

OR A USED CAR--

YOU PAY NO SALES TAX.

>> EVERY HOUSEHOLD WILL GET

A CASH DISTRIBUTION

AT THE BEGINNING OF EVERY MONTH

THAT WILL TOTALLY UNTAX THEM

UP TO POVERTY-LEVEL SPENDING.

>> IT ESSENTIALLY UNTAXES

EVERY POOR AND ELDERLY PERSON

FROM THEIR BASIC NECESSITIES

SUCH AS FOOD AND MEDICINE

AND BASIC UTILITIES.

>> AND I KNOW-- I KNOW TAXES

ARE BORING, BUT WHAT'S BORING

ABOUT GETTING 100%

OF YOUR PAYCHECK?

WHAT'S BORING ABOUT NOT HAVING

TO KEEP TAX RECORDS?

WHAT'S BORING ABOUT NOT HAVING

TO KEEP RECEIPTS?

WHAT'S BORING ABOUT NOT EVER

WORRYING ABOUT AN IRS AUDIT?

THOSE THINGS AREN'T BORING.

THEY'RE NOT-- THAT CAN BE

THE REALITY, IF PEOPLE

GET ON THE BANDWAGON

WITH THE FAIR TAX.

>> NOW, IN THE POLITICAL WORLD,

THE CONSUMPTION TAX IS

BASICALLY A CONSERVATIVE MOVE.

IT'S BASICALLY A WAY

OF SAYING WE'RE GONNA TAX

RICH PEOPLE LESS.

THEY SAVE MORE THAN POOR PEOPLE,

SO THEY HAVE MORE OF

THEIR INCOME COMES FROM SAVING.

WE'RE GONNA MAKE IT

LESS PROGRESSIVE

BY NOT TAXING THEM AS MUCH.

IN THE ACADEMIC WORLD,

IT'S VERY DIFFERENT.

YOU HAVE PEOPLE WHO ARE

LIBERAL DEMOCRATS WHO FAVOR IT

AS MUCH AS CONSERVATIVE

REPUBLICANS, AND THE ARGUMENT

IS FOR A PROGRESSIVE

CONSUMPTION TAX OF ONE KIND

OR ANOTHER, IT WOULD

APPROXIMATELY AS PROGRESSIVE

AS THE SYSTEM WE HAVE NOW.

>> REGARDING A VALUE-ADDED TAX,

IN EFFECT, A VALUE-ADDED TAX

IS JUST A DIFFERENT FORM

OF NATIONAL SALES TAX.

IT'S WHAT THEY CALL

A NATIONAL SALES TAX IN EUROPE,

AND THE REASON THAT THE EUROPEAN

COUNTRIES HAVE PUT IN

A VALUE-ADDED TAX

INSTEAD OF A NATIONAL SALES TAX

IS BECAUSE THE VALUE-ADDED TAX,

IN SOME SENSE,

IS SELF-ENFORCING.

>> ONE QUESTION IS WHY DOES--

WHY DO EUROPEAN COUNTRIES

RELY SO HEAVILY

ON VALUE-ADDED TAXES?

THEY RELY MUCH MORE

ON CONSUMPTION TAXES

THAN WE DO IN THE UNITED STATES,

AND THE REASON IS, I THINK,

THAT THEY DON'T RELY

ON THE WHOLE TAX SYSTEM--

THEY DON'T RELY

ON THE TAX SYSTEM

AS THEIR PRIMARY MEANS

OF PROVIDING PROGRESSIVITY.

>> I THINK IN

THE ADVANCED COUNTRIES,

THE DEVELOPED COUNTRIES

OF THE WORLD, THERE IS

MUCH MORE EMPHASIS

ON THE ROLE OF THE--

OF THE NATIONAL GOVERNMENT.

>> THEY FINANCE A LOT

OF THEIR HIGHER EDUCATION

THROUGH THE GOVERNMENT.

THEY HAVE UNIVERSAL HEALTH

INSURANCE THAT THEY FINANCE,

AND SO, UH, YOU CAN'T JUST

LOOK AT THE TAX.

YOU ALSO HAVE TO LOOK

AT WHAT THE TAX PAYS FOR.

>> THOSE COUNTRIES TEND TO HAVE

MUCH HIGHER TAXES THAN WE DO.

SO, THEY COMBINED

THE INCOME TAX

WITH A CONSUMPTION TAX.

AND YOU SEE IN FRANCE AND ITALY

AND SWEDEN AND NORWAY

AND DENMARK AND ALL

OF THOSE COUNTRIES

MUCH HIGHER LEVELS OF TAX--

IN FACT, OUR CURRENT TOTAL

FEDERAL TAX BURDEN

IS AMONG THE LOWEST

OF ALL DEVELOPED COUNTRIES

IN THE WORLD, AND YET

WE FEEL WE'RE OVERTAXED.

WELL, MAYBE WE FEEL OVERTAXED

'CAUSE WE DON'T LIKE

THE SERVICES, BUT RELATIVE

TO OUR INCOME, WE'RE VERY LOW.

SO, IN EUROPE, HIGHER--

MUCH HIGHER TAXES

AND HIGHER SOCIAL SERVICES.

SO, THAT'S THE TRADEOFF.

UM, ARE WE WILLING

TO EXPERIENCE THAT?

>> YOU KNOW, I NEVER REALIZED

JUST HOW MUCH

THESE THINGS MEANT...

UNTIL NOW.

>> Fox: ONE OF THE THINGS

THAT YOU REALLY KNOW IN--

WHEN IT COMES TO TAXATION,

IS THAT NO MATTER HOW BAD

THE SYSTEM MIGHT BE,

AND I THINK IT'S REALLY, UH,

INDEFENSIBLE, IT'S THE SYSTEM

THAT IN SOME WAY PEOPLE KNOW.

THEY DON'T REALLY KNOW IT,

BUT THEY-- IT'S WHAT

THEY'RE FAMILIAR WITH.

AND SO EVEN THOUGH THEY--

THEY'RE UNHAPPY PAYING

ACCOUNTANTS AND OTHERS TO--

EVEN THOUGH THEY KNOW

THEY HAVE TO KEEP

FAR TOO MANY RECORDS,

IT'S TOUGH FOR THEM

TO SAY, WELL, LET'S GO

TO A SIMPLIFIED SYSTEM

THAT THEY DON'T REALLY KNOW

AND THEY DON'T

NECESSARILY TRUST.

"ARE YOU GONNA CUT OUT

ALL OF MY DEDUCTIONS,

OR MOST OF THEM?

TAX ME ON A LOT OF FRINGE

BENEFITS AND OTHER THINGS?

AND THEN ONCE

YOU HAVE THEM GONE,

ARE YOU GONNA UP MY TAX RATES

ABOVE WHAT YOU SAID?

CAN I TRUST YOU?"

SO, HOW DO YOU BUILD

A REFORM MOVEMENT

THAT IS BUILT ON TRUST

RATHER THAN JUST PROMISES?

AND I THINK THAT'S ONE

OF THE GREAT CHALLENGES.

>> IF YOU'VE AN ACTIVIST

OUT THERE AND YOU WANT

TO MAKE AMERICA BETTER,

YOU WANT OUR TAX SYSTEM

TO BE SIMPLE AND FAIR,

WHAT'S THE BEST WAY TO GO?

>> Man: WHAT WOULD HE LIKE

FOR DINNER?

HE JUST LOVES CHOCOLATE CAKE.

GO AHEAD, TRY ONE.

ALL YOU HAVE TO DO

IS FOLLOW THE RECIPE.

THIS IS GOING TO BE EASY.

LET'S SEE, WHAT'S NEXT?

>> THE GOAL OF FUNDAMENTAL

TAX REFORM SHOULD BE

SIMPLICITY, NUMBER ONE.

YOU KNOW, WE HAVE

AN AMAZINGLY COMPLEX

TAX SYSTEM, UH, THAT, UH,

BY SOME ESTIMATES

COSTS AMERICANS

OVER $280 BILLION A YEAR

TO COMPLY WITH.

>> YOU MUST STIR

THE INGREDIENTS

IN YOUR CHOCOLATE CAKE.

TO STIR IS

TO MIX FOOD MATERIALS

WITH A CIRCULAR MOTION

TO SECURE A UNIFORM

CONSISTENCY.

>> YOU REALLY HAVE TO THINK

ABOUT REFORMING THE TAX CODE

EITHER INCREMENTALLY

OR AS ONE BIG CHANGE.

UH, THERE'S REALLY ABOUT

50 REASONS, AND THEY ARE CHINA,

INDIA, JAPAN, MALAYSIA...

YOU NAME THE COUNTRY.

SOUTH KOREA

AND THE ENTIRE EUROPEAN UNION.

EVERYBODY IN THE WORLD

IS WORKING TO BECOME

MORE COMPETITIVE.

IT IS A COMPETITIVE

GLOBAL ECONOMY.

EVERYONE'S TRYING TO COMPETE,

BECAUSE IF YOU CAN COMPETE

BETTER, YOU PROSPER MORE.

>> BUT YOU REALLY HAVE TO ASK

IF THE ONLY PART OF THE COUNTRY

THAT'S REALLY BOOMING

IS THE CAPITAL, IS THERE

SOMETHING WRONG

WITH THE GOVERNMENT,

AND I THINK THERE IS.

IT'S TOO SELF-CENTERED.

IT'S TOO WORRIED ABOUT

ITS OWN WELL-BEING,

AND IT IS NOT DOING

WHAT IS NECESSARY

TO MAKE THE COUNTRY GROW.

>> CREAM BUTTER MEANS

TO MANIPULATE

WITH AN INSTRUMENT

UNTIL IT BECOMES SOFT

AND SMOOTH.

>> WHEN YOU FIND YOURSELF

SITTING DOWN AND RUNNING NUMBERS

TO FIGURE OUT WHERE IT MAKES

MORE SENSE FOR YOU TO LIVE

AND WHAT KIND OF HOUSE

YOU SHOULD HAVE, YOU REALIZE

THE EXTENT TO WHICH TAX

ACTUALLY CONTROLS

YOUR DAY-TO-DAY CHOICES.

>> WE LIKE TO USE THE TAX CODE

TO DO LITTLE TOKEN THINGS,

AND WE'VE BEEN DOING

MORE OF THOSE IN THE PAST

20 YEARS, AND THAT'S WHY

WE HAVE THESE FOUR-PAGE

TAX RETURNS.

>> THIS SOCIAL ENGINEERING

BUSINESS-- THEY GIVE YOU

A HOUSING INTEREST TAX CREDIT

SO YOU'LL BUY A HOME,

AND THEN THEY GIVE YOU

A MARRIAGE PENALTY

SO YOU'LL LIVE IN IT

OUT OF WEDLOCK.

WHAT ARE THEY TRYING TO DO?

JUST LEAVE PEOPLE ALONE.

>> THAT'S RIGHT, POUR IT IN.

THE RECIPE SAYS "CREAM

THE BUTTER," SO PUT IN

LOTS OF CREAM.

>> WE USE THE TAX CODE

FOR A LOT OF THINGS

OTHER THAN JUST COLLECTING TAX,

AND ACTUALLY, A LOT OF TIMES,

WE'RE NOT VERY SERIOUS

ABOUT COLLECTING TAX!

>> THERE'S OVER

$300 BILLION A YEAR--

$300 BILLION A YEAR

OF TAXES THAT ARE NOT PAID

THAT-- THAT SHOULD BE PAID,

YOU KNOW, UNDER THE LAW.

SO, LOOK AT IT THAT WAY,

THAT MEANS EVERYBODY

THAT'S HONESTLY PAYING

IS PAYING 20% MORE

THAN THEY NEED TO

TO MAKE UP FOR THE $300 BILLION

THAT'S NOT BEING PAID.

SO, WHEN YOU ADD THAT TOGETHER,

THAT'S AN ENORMOUS INEFFICIENCY.

>> JUST LOOK AT THAT

SILKY SMOOTH TEXTURE

OF THAT BATTER.

>> SNEAK, UH, TAXES.

WE SOMETIMES GET A TAX INCREASE

AND WE DON'T EVEN KNOW IT,

BECAUSE THE CODE

IS SO COMPLICATED.

I'VE BEEN HIT WITH SNEAK ATTACKS

MANY, MANY, MANY TIMES,

AND DIDN'T REALIZE IT

UNTIL AFTER THE FACT.

>> I THINK PEOPLE WANT A--

THE SIMPLEST--

THE SIMPLEST TAX SYSTEM

WE CAN POSSIBLY GIVE THEM,

AND-- AND-- AND ONE

THAT'S TRANSPARENT,

THAT THEY CAN UNDERSTAND, UH,

WHERE-- WHY THEY HAVE TO PAY

THE AMOUNT OF TAX

THEY HAVE TO PAY.

>> NO, MARGIE, YOUR CAKE

DIDN'T TURN OUT SO WELL

BECAUSE YOU MISUNDERSTOOD

A TERM IN YOUR COOKBOOK.

>> ONE OF THE THINGS

THAT, UH, PEOPLE TALK ABOUT

IN TERMS OF THE TAX CODE

IS WHETHER IT'S FAIR,

AND THAT'S, OF COURSE,

A VERY GENERAL TERM

THAT IS, UH, VERY SUBJECT

TO INTERPRETATION

AS TO WHAT EVERYBODY

THINKS IS FAIR.

>> WE HAVE TO RECOGNIZE

THAT THERE ARE INEQUALITIES

IN THE COUNTRY.

THERE ARE TENSIONS BECAUSE

OF ECONOMIC INEQUALITIES.

WE NEED TO DEBATE

WHY THOSE INEQUALITIES

HAVE COME ABOUT,

AND WE NEED TO DEBATE

HOW MUCH WE WANNA DO

TO LEVEL OUT THOSE INEQUALITIES,

BECAUSE ONLY IF WE HAVE

THAT DEBATE CAN WE PROCEED

INTELLIGENTLY.

>> LATER, YOU MAY BE REQUIRED

TO BEAT EGG WHITES STIFF,

BUT NOT DRY, OR SO THAT THEY

HOLD THE GREATEST AMOUNT

OF AIR WITHOUT LOSING

THEIR ELASTICITY.

>> YOU NEED TO MAKE SURE

THAT YOU'RE GENERATING

ENOUGH REVENUE, AT LEAST

OVER A BUSINESS CYCLE,

WHERE YOU CAN PAY

YOUR CURRENT BILLS,

AND WHERE, ULTIMATELY,

OVER TIME, YOU'RE PROJECTED

TO GENERATED ENOUGH REVENUE

THAT YOU CAN KEEP THE PROMISES

THAT YOU INTEND TO KEEP,

AND THAT'S WHAT WASHINGTON

HAS FAILED ON.

>> YES, EVEN MARGIE FOUND

THAT SHE COULD LEARN TO COOK

WHEN SHE DISCOVERED

THE SIGNIFICANCE OF THE TERMS

USED IN COOKING...

AND TIM WILL NEVER KNOW

SHE RUINED HER FIRST CAKE.

>> WHAT COALESCENCE OF THINGS,

WHAT CAN HAPPEN

THAT MAKES TAX REFORM POSSIBLE?

YOU NEED A STRONG PRESIDENT.

MY GUESS IS THAT IT WOULD HAVE

TO BE IN A SECOND--

A SECOND TERM.

UH, SECONDLY, YOU NEED LEADERS

WITHIN THE PARTY

WHO SAY IN THE BACK ROOMS,

"LOOK IT, THIS IS SERIOUS.

WE NEED TO GET TOGETHER

AND PROVIDE

THE CONGRESSIONAL LEADERSHIP."

AND, THIRD, IT NEEDS TO BE

SOME GRASSROOTS MOVEMENT.

MOST GREAT MOVEMENTS

ACTUALLY COME FROM

THE GRASSROOTS.

SO, YOU NEED ALL

OF THOSE ELEMENTS,

AND I'M STILL OPTIMISTIC ENOUGH

ABOUT THIS COUNTRY

AND ITS PEOPLE TO BELIEVE

THAT WE'RE CAPABLE OF THAT.

>> I DON'T KNOW THAT MANY PEOPLE

WHO LIKE TO PAY TAXES,

BUT TAXES ARE A NECESSARY THING

WHEN YOU ARE TRYING TO FINANCE

A GOVERNMENT, AND TO MEET

THE BROADER INTERESTS

OF SOCIETY THAT OTHERWISE

CAN'T BE MET

BY THE PRIVATE SECTOR,

OR AREN'T BEING MET

BY OTHER LEVELS OF GOVERNMENT,

LIKE THE STATE

AND LOCAL LEVEL OF GOVERNMENT,

IN THE CASE

OF THE FEDERAL GOVERNMENT.

SO THEY'RE A NECESSARY EVIL.

>> THERE IS ANOTHER WAY

OF LOOKING AT TAXES.

THE OTHER WAY OF

LOOKING AT TAXES IS THAT

WHEN APRIL 15th COMES ALONG,

YOU'RE HAPPY BECAUSE YOU CAN

CONTRIBUTE AS A MEMBER

OF THE COMMUNITY TO ACHIEVING

THE COMMUNITY GOALS

THAT ARE ESTABLISHED

BY A DEMOCRATIC

PARTICIPATORY PROCESS.

IN THAT SENSE,

TAXES ARE A GOOD THING.

>> YOU KNOW, THE WAY YOU TAX,

A LOT OF PEOPLE ARGUE,

REALLY DEFINES WHAT YOU ARE

AS A COUNTRY.

>> WE'RE GOING TO HAVE

TO FIND A WAY TO-- TO PAY

NOT ONLY FOR ALL THE DEBTS

WE'RE ACCUMULATING RIGHT NOW,

BUT ALSO TO PAY

FOR ALL OF THE PROMISES

WE'VE MADE TO SENIOR CITIZENS,

UH, AND YOU NEED

A WORKING TAX SYSTEM.

YOU NEED A TAX SYSTEM

THAT'S PERCEIVED AS FAIR

AND CAN RAISE ENOUGH REVENUE.

IT'S GONNA NEED TO RAISE

A LOT MORE REVENUE

THAN THE CURRENT SYSTEM.

THE CONGRESSIONAL BUDGET OFFICE

PROJECTS THAT IF CURRENT--

IF CURRENT TRENDS CONTINUE--

HEALTH COSTS CONTINUE

TO GROW FASTER THAN THE ECONOMY

AND BABY BOOMERS AGE

AND RETIRE-- UH, THAT SPENDING

ON THREE PROGRAMS

FOR THE ELDERLY--

SOCIAL SECURITY, MEDICAID,

AND MEDICARE-- WILL TAKE UP

18% OF GDP.

THAT IS THE HISTORICAL AVERAGE

OF ALL SPENDING

FOR THE GOVERNMENT.

>> Fox: YOU'VE GOTTA COME

TO TERMS WITH THE FACT

THAT OVER THE LONG RUN,

WE CAN'T AFFORD THE BENEFITS

WITHOUT INCREASING THE TAXES,

AND YOU CAN'T IMAGINE

ANYBODY SAYING THAT.

NOW, OBVIOUSLY, THE CANDIDATES

ARE SAYING, "WE'RE GONNA HAVE

YOU PAY LESS TAXES."

>> WE CAN'T AFFORD TO LOWER

ANYBODY'S TAXES,

AND THE ONLY WAY YOU CAN

GET REGULAR, AVERAGE PEOPLE'S

ATTENTION ABOUT TAX REFORM

IS IF YOU TELL 'EM

YOU ARE GONNA LOWER THEIR TAXES.

THERE-- YOU KNOW, IF YOU JUST

SAY, "WELL, WE'RE GONNA

REARRANGE, AND YOU'RE GONNA

PAY ABOUT THE SAME AMOUNT,"

THEY'RE NOT GONNA WANT

TO LISTEN TO THAT.

>> SOMETIMES YOU HAVE TO MAKE

CHOICES THAT DON'T SOUND

POLITICALLY CONVENIENT,

BECAUSE THE ALTERNATIVE

IS JUST TOO DREADFUL TO IMAGINE.

>> UNTIL THERE IS A CONCEPTION

OF PARTICIPATING

IN A DEMOCRATIC SOCIETY,

AND A CONCEPTION WHICH IS REAL,

NOT JUST WORDS, BUT IT MEANS

YOU REALLY ARE PARTICIPATING

IN A DEMOCRATIC SOCIETY--

UNTIL THAT'S THE CASE,

DISCUSSION OF TAXES IS,

UH, FIDDLING WITH TECHNICALITIES

AND MISSING THE POINT.

>> Fox: WHAT'S HAPPENED IS

THAT WE FEEL LESS CONNECTED,

AND SO THE APPEAL

NOT TO PAY TAXES--

IT'S YOUR MONEY;

YOU CAN DO BETTER WITH IT--

MEANS THAT WHY ARE YOU HELPING

SOMEBODY ELSE WHO DOESN'T

HAVE SOME IMMEDIATE CONNECTION

TO YOUR FAMILY OR NEIGHBORHOOD

OR COMMUNITY?

IT USED TO BE PEOPLE WENT

TO SCHOOL WITH THE PEOPLE

THEY WORKED WITH,

AND-- AND MANAGERS, OWNERS,

THEIR KIDS, WORKERS,

YOU KNOW, BLUE COLLAR,

WHITE COLLAR--

THERE WAS AN ENORMOUS MIX

AND INTERACTION.

AND I THINK THERE WAS

A MUCH GREATER SENSE OF--

THAT WE'RE ALL IN THIS TOGETHER.

IN ORDER FOR THESE THINGS

TO HAPPEN AGAIN, SOMEHOW

WE MUST CAPTURE THAT SENSE

THAT WE ARE A-- ONE NATION.

YOU KNOW, WE ARE A COMMUNITY,

AND THEN WE HAVE TO DECIDE,

WELL, WHAT IS IT

THAT THE FEDERAL GOVERNMENT

SHOULD DO, AS OPPOSED TO

THE STATE OR LOCAL GOVERNMENT,

AS OPPOSED TO OURSELVES

INDIVIDUALLY?

THOSE ARE TOUGH DECISIONS,

BUT WHAT CAN THE FEDERAL

GOVERNMENT DO BEST,

AND WHAT SHOULDN'T IT DO?

AND WE NEED THOSE CONVERSATIONS

TO BE GOING ON

THROUGHOUT THE COUNTRY.

>> Thorndike: YOU KNOW, THERE'S

A REASON WHY I'VE SPENT MY LIFE

ON THIS ISSUE.

IT'S THAT IT IS SIMPLY

TOO IMPORTANT TO IGNORE,

AND INERTIA IS SO STRONG

THAT IT REQUIRES ALL OF US

TO PAY ATTENTION

SO THAT THE TAX SYSTEM

DOESN'T JUST GET WORSE,

DOESN'T JUST GET

MORE COMPLICATED,

DOESN'T JUST GET

MORE INEFFICIENT.

OTHER PEOPLE WILL PAY ATTENTION.

THE WRONG PEOPLE

WILL PAY ATTENTION,

AND THEY'LL GET THE TAX SYSTEM

TO DO WHAT THEY WANT IT TO DO.

SO, IF AMERICANS AS A WHOLE

WANT TO PREVENT PEOPLE

FROM MAKING OUT LIKE BANDITS

AND WANT A TAX SYSTEM

THAT TREATS THEM FAIRLY

AND THAT IS GOOD

FOR THE COUNTRY AS A WHOLE,

THEY HAVE TO ENGAGE THIS TOPIC.

YOU CAN'T AVOID IT,

AND YOU CAN'T JUST

COMPLAIN ABOUT IT.

>> WHAT THE POLITICIANS FEAR,

IN THEIR HEART OF HEARTS,

THE WASHINGTON POLITICIANS,

I THINK, IS NOT A LOSS

OF REVENUE.

THEY KNOW, OVER TIME,

WASHINGTON WILL GET ITS--

ITS TAKE, WILL GET ITS CUT.

IT'LL DO JUST FINE.

WHAT THEY REALLY FEAR

IS THE LOSS OF POWER.

>> Boortz: WE HAVE A RIGHT,

WHEN GOVERNMENT BECOMES ABUSIVE,

OF LIBERTY TO ABOLISH

OR CHANGE GOVERNMENT.

THIS IS CHANGING GOVERNMENT.

>> UH, EVERY AMERICAN CITIZEN

SAY, "IF I DON'T LIKE

THIS TAX CODE,

I NEED TO SERIOUSLY DETERMINE

WHAT, IN MY MIND, IS A WORKABLE

OPTION AND GET BEHIND THAT."

>> IF TAXPAYERS DEMANDED IT,

THE POLITICIANS

AND THE POLITICAL LEADERS

WOULD RESPOND, AND WE COULD

GET A DRAMATICALLY BETTER

TAX SYSTEM FOR EVERYBODY.

>> WASHINGTON HAS OVERPROMISED

AND UNDERPERFORMED,

AND IT'S TIME THAT THAT STOP.

AND IT NEED TO STOP NOW.

>> I THINK EVERY AMERICAN

OUGHT TO START UNDERSTANDING

THERE IS A WAY TO FIX THIS.

WE DON'T HAVE TO LIVE

WITH THIS ONEROUS BURDEN.

WE DON'T HAVE TO CONTINUE

TO SAY, "OH, WE'RE LOSING GROUND

WITH THE CHINESE, LOSING GROUND

WITH THE MEXICANS." NONSENSE!

LET'S START GAINING NOW.

LET'S START EMPOWERING

AMERICANS AGAIN.

>> THE CURRENT SYSTEM

IS A DISASTER FOR OUR CHILDREN

AND GRANDCHILDREN.

DEMOCRATS AND REPUBLICANS ALIKE

CARE ABOUT THEIR CHILDREN.

>> THE REST OF THE WORLD

IS CHANGING.

THE REST OF THE WORLD

IS BECOMING MORE COMPETITIVE.

WE HAVE TO KEEP WORKING,

EVERY YEAR, TO BECOME

MORE COMPETITIVE,

AND A BIG PLACE TO DO THAT

IS IN THE TAX CODE.

>> I, FOR ONE, AM NOT CONVINCED

THAT UNHAPPINESS WITH

THE TAX SYSTEM IS GONNA BE

STRONG ENOUGH TO GET IT

TO CHANGE, UH, ON ITS OWN RIGHT.

I JUST-- I JUST DON'T THINK

THAT LAWMAKERS WILL MUSTER

THE WILL TO MAKE

A FUNDAMENTAL CHANGE

IN THE TAX SYSTEM

UNTIL THEIR HAND IS FORCED.

UM, WE'RE JUST WAITING

FOR THAT MOMENT.