The new “housing bill” will apparently become law, and the implications are disturbing. First, the swiftness of Congress’s “action” on this bill reminds me of other times they have rushed to pass major legislation, often without the benefit of having read it – like the Patriot Act, for example. It’s nothing new either - the Federal Reserve Act was another such instance, and Woodrow Wilson himself later admitted he had made a mistake by signing it. 95 years later - the Fed is still here. It would be tragic if this housing bill has a similar destiny.
Like other modern legislation, HR 3221 has been larded up with various amendments that have nothing to do with its ostensible purpose. One particularly egregious provision, little noticed by the media, requires that all credit card transactions, including online, will be reported to the IRS by 2009. The argument in support goes like this – “This is no different than when an employer pays you money, they have to report that to the IRS, brokers have to report the sales of securities, and when you sell a home, the closing attorney reports the sale to the IRS – so what’s the big deal? It’s just closing another loophole, that’s all.”
First off, such a far-reaching tax provision demands to be debated on its own, and not snuck into an unrelated bill at the last minute. Second, the tax rules for securities “gains” are famously incomprehensible, and the IRS aggressively totes up the amount of every securities sale and calls it all “income,” meanwhile, you are left alone to compute your losses, and hope they agree with you. Interestingly, with big banks, profits may be privatized and losses socialized; but with securities sales, (and gambling losses) – the profits are taxed, but losses are yours to bear alone.
The real elephant in the corner, however, is our entire tax paradigm itself - one best described as, “every time money changes hands is a taxable event.” This is no exaggeration. All the “exemptions,” and “deductions” mean nothing, as they can be changed or eliminated at will. Tax rates are not the issue here, instead it’s the increasing number of economic activities being labeled as “income” and reported to the IRS. Back when America had steady growth, savings, and low inflation, very few people paid income taxes. Until the 40’s, according to the Treasury, less than 10% of us filed income tax returns. Obviously, more kinds of payments have somehow become “income” since then.
Congress now sees no limitations on what they may declare to be “income.” If we work for anything of value, or we are given something, or if we sell something, or if we bequeath something to our children – these are all reported to the IRS and considered taxable events. If we gamble and win, even those proceeds are considered “income.” This new bill adds to an already long list of taxable events. Now, when we borrow money from a credit card company and then pay it back – the IRS can use those details to “impute” income where none or “not enough” had been reported. Can all these different things really be considered “taxable income,” or even evidence of it? Not in a free society.
The “everything is income” crowd must believe that ever more people and activities can be taxed with no real economic pain. They forget that the foundation for our high living standards was really laid back when far fewer activities were being reported on and taxed than there are now, and this new credit card proposal represents an even bigger departure from that past. These same people haven’t noticed that real economic growth has stopped as a result of government spending, borrowing, inflating, and warring more and more over the years. Attempting to transfer any more dollars from the people to such a government is useless and impractical.
The point is that all those various activities added to the tax rolls over the years didn’t help our economy at all. Why add more? We can’t afford to discourage any private economic activity at all right now, and that includes credit card spending. This provision will shrink the consumer-based economy right at a time when we simply cannot afford it. Not everyone pays taxes, but plenty of these non-filers still have credit cards, and they still support our economy by spending. By trying to tax what cannot be reasonably taxed, that marginal economic activity will simply go away.
Especially after these people start getting letters from the IRS.