Heart Of Darkness

An editorial in yesterday's WSJ (sub req) looks at the budget plan put forward by Kent Conrad, a very blue Senator from a very red state:

Mr. Conrad, the Senate Budget Chairman, pulled off the neat magic trick of claiming his budget includes "no tax increase," even as it anticipates repeal of the Bush tax cuts after 2010. How does he pull that rabbit out of his hat? By positing what amounts to a giant asterisk where the tax increase is supposed to go and hoping no one will notice.

Mr. Conrad has no intention of extending the Bush tax cuts, which he voted against and whose repeal would slap the economy in 2011 with the largest tax increase in U.S. history. But Senate Democrats don't want anyone to know this, at least not before the 2008 election. So Mr. Conrad says his budget revenue estimates "assume that Congress will take steps to counter the effects of the expiration of tax cuts in 2010 in a manner that does not add to the nation's debt burden." How so? Well, "this additional revenue can be achieved without raising taxes by closing the tax gap, shutting down illegal tax shelters, addressing tax havens, and simplifying the tax code," he avers.

What the Senator should have said is "Abracadabra." The 10-year revenue increase from repealing the Bush tax cuts is something like $2 trillion, according to Congress's static-revenue models. Mr. Conrad is claiming that Congress will make up for all of that lost revenue by chasing down such illusions as the "tax gap," which the IRS claims is the difference between the taxes people owe and what they pay.

But if this magical $345 billion a year (as of 2001) were easily found, don't you think the army of IRS auditors and tax collectors would have found it by now? The only way to close this "tax gap" is by harassing taxpayers or closing loopholes in ways that are sure to meet political resistance and perhaps result in a backlash. Congress will never do it.

The editorial also provides an update on who's really paying the piper:


By the way, the latest IRS data also show that the wealthiest Americans continue to carry a record share of the income tax load. As the nearby chart shows, the richest 1% paid 35.6% of all income taxes in 2004, the most recent year in which data are available. The top 10% pay a remarkable two-thirds of all income taxes. The irony is that the Bush tax cuts have made the U.S. income tax code more progressive. But according to John Edwards and other class warriors, that's not enough.

It's never enough.