How the income tax expired: A View from 1994;

              A View From 1994
How
the Income Tax Expired
Is it good luck or good old American know-how that enables us to develop our technology just in time to solve the nation's economic, social, and political prob-lems? The managers of U.S. fiscal policy in this year of 1994 are breathing a collective sigh of relief as computer technolo-gy and the miracles of miniaturization join to rescue the nation from the fiscal chaos of the mid-1980s. The irony is that the first dying gasps of the income tax system were heard as far back as 1982 but were ignored by the same pundits who today predict that technology will bring down the entire fiscal system.
The old income tax system operated effectively for many decades as part of an overall structure of income redistribu-tion. While public moneys were used to provide housing for the poor, and to subsidize housing for the nearly poor, the tax system from which those dollars flowed also subsidized the well-to-do and even the wealthy. Tax deductions were al-lowed for interest payments on home mortgages and for local real estate and personal property taxes.
Similarly while employers providing health care plans for employees obtained a deduction for those expenses, the employees were able to exclude any economic benefit they received from their taxable income. Each session of Congress seemed to provide some fine tuning here, some shift of emphasis there. But a symmetry of sorts was maintained— and practically everyone played the game by the rules, because each saw the rules as giving him or her an edge.
Rut overall it was not just a lack of symmetry which
brought on the collapse of the income tax. Nor was it anything inherent in what was then referred to as "supply-side economics" (which has been characterized by one newspaper editorial writer as about as significant to econom-ic theory as aluminum siding is to architecture).
No, the stress that collapsed the fiscal beast-of-burden's back turned out to be the fair-play doctrine espoused by the most stellar leaders of our society—the clergy, the college presidents, and the heads of charitable institutions and voluntary service organizations. Alarmed by the threat to charitable contributions that is inherent in reducing the tax rates of the rich, as well as by the lack of tax incentives for contributions from the increasing army of taxpayers who were using the zero-bracket deduction, these humanitarians succeeded in moving charitable contributions from being treated as itemized deductions, to being allowed whether or not the standard deduction was taken.
The "standard shift,1" as the new tax system was labelled (some wags called it the "standard shaft"), occurred at a time when the IRS found itself increasingly unable to audit more than a small percentage of individual income tax returns. The result was that by 1986 deductions for charitable contri-butions were claimed on 50 million individual taxpayer returns on which deductions were not itemized—with such deductions uniformly amounting to 50 percent of the re-ported adjusted gross income, Yet, there was little or no perceptible increase in actual charitable giving.
Attempts to restore integrity to the voluntary assessment