COMMENTS ON THE EFFECT OF THE 1982 TAX LEGISLATION

American comment on the “Tax Equity and Fiscal Responsibility Act of 1982” has not stressed the revenue raising aspects of the legislation. Social reform and fairness have been the key words, in line with the modern tendency to regard taxation as a tool of social engineering. Of course, the initial reason for Congress activity was the pressing need to reduce somehow or other the frightening budget deficit, but the President had been elected on a tax reduction platform, and could not openly support undisguised tax increases. He had to talk of a Tax Reform Act, and an Act could be passed only if some reform measures were included. Even the title of the Act illustrates the image that legislators wanted to project: “Tax Equity” and “Social Responsibility”. Nothing about tax increases, and in fact there has not been much in the way of increased income taxation.

However, when the Senate Finance Committee reported to the full Senate on the legislation, it placed as first of four objectives of the Bill the need to reduce the Federal deficit. Both the Office of Management and Budget in the White House, and the Budget Office in Congress, agreed that a deficit of $182 billion could be expected for the fiscal year ending in 1983, unless something were done, and that by 1985, when the country was expected to be prosperous, the deficit could be 5.6% of the gross national product, a record high percentage. A consequence of large deficits would be a crushing burden of high interest rates, which would make it difficult for Americans to acquire their own homes, and would lead to the bankruptcy of an ever increasing number of businesses. The Federal Government itself would have to pay away 3.6 % of the gross national product in interest by 1985. Some tax increases were therefore inevitable.

The second objective of the Bill was to achieve tax equity. Americans claim that their tax system is one of voluntary compliance, and if this is so, many taxpayers will be reluctant to comply voluntarily with a system that imposes a lighter burden on some other taxpayers because of special deductions, exclusions and tax credits. In fact, when a taxpayer fails to comply voluntarily, substantial penalties are incurred, if the taxpayer’s errors and omissions are discovered, and a system can hardly be described as voluntary when non-compliance produces such unpleasant results. The question that most taxpayers ask is “What are the chances of being found out?”, and tax equity is achieved when the answer is that the chance of being found out is