Don't Mess With Taxes

How's this for a Tax Twilight Zone moment?

I just received an e-mail that says both presidential candidates' tax plans will reduce millions of taxpayers' liability to zero or less. The percentage of U.S. residents who wouldn't have to pay taxes under either a Barack Obama or John McCain Administration would be 44 percent or 43 percent, respectively.

The freaky thing about those numbers (and we'll get to the disturbing thing about them in a minute) is that the e-mail containing them arrived shortly after I blogged about how more than 40 percent of Australians pay no taxes, and used that statistic as a hook to point out other parallels in the two tax and political systems half a world apart.

Millions more tax-free: The startlingly similar numbers of potential U.S. non-taxpayers come from the Tax Foundation. The  nonpartisan, Washington, D.C.-based tax research group, has been tracking the tax plans, from both fiscal and policy standpoints, of both Obama and McCain.

The organization's latest number crunching shows that:

If all of the Obama tax provisions were enacted in 2009, the number of nonpayers would rise by about 16 million, to 63 million overall, or 44 percent of all tax returns.

If all of the McCain tax proposals were enacted in 2009, the number of nonpayers would rise by about 15 million, to a total of 62 million overall, or roughly 43 percent of all tax filers.

Under current tax laws, IRS statistics for 2006 show that 45.6 million tax filers, essentially one-third of all filers, have no tax liability after taking their credits and deductions. "For good or ill," notes the Tax Foundation, "this is a dramatic 57 percent increase since 2000 in the number of Americans who pay no personal income taxes."

Click here to read the full Tax Foundation paper.

Who's left holding the tax bag? The problem for both candidates, their political parties and you and I is, Who is left to pay? While it is laudable to want to help ease tax burdens, this is where things get disturbing.

If people already are pointing fingers at each other -- rich, poor, small businesses, big corporations, tax slackers, tax burden bearers -- then it will only get worse as the split between those who pay and those who don't nears 50-50.

Realistically, neither man's tax plan will go into effect as presented on the campaign trail. But their proposals do bring up the issue of how a tax system should work. Right now, it's a big political goody bag instead of a sensible method to fund a country's operations.

Dubya deserves credit for appointing the President's Advisory Panel on Federal Tax Reform that came back with some interesting ideas about how to truly reform our tax system. Too bad no one had the political stomach to even give the Panel's suggestions a second look.

But with both Obama and McCain proposing literally giving away so much, we have an opportunity to seriously reconsider a system in which the spoils of victory are ultimately so costly to everyone.

Scott Hodge, who wrote the paper for the Tax Foundation, cuts right to the chase: "It is time for a serious public discussion of whether it is desirable to have so many Americans disconnected from the cost of government and what the consequences are of using the tax system as a vehicle for social policy."

Are you willing to give up a tax break? Which one? How would you make up the lost revenue from either Obama's or McCain's tax proposals?