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The Great Tax Debate That Wasn't

At midnight this New Year's Eve, unless Congress intervenes, the U.S. tax code does a reverse somersault, upending a decade of tax law and reverting to its alignment of 2001, a tax hike costing $4 trillion over 10 years.

The unyielding calendar dictates that Congress must act quickly. That is an irresponsible option and a wasted opportunity for the nation.

It means a $4 trillion decision after a debate that hasn't been worth two cents.

What should have been a thoughtful discussion of what we want government to do, followed by selecting the best, most efficient and equitable ways to pay for it, has instead been reduced to a bumper sticker war of words: "Bush tax cuts: keep 'em or kill 'em."

Our tax code barely reflects the 21st-century world. Instead, vast changes have been accommodated by piecemeal patches and tweaks and an ever-growing list of tax breaks and loopholes that now total $1 trillion a year.

One trillion dollars! Consider two of the largest: deductions for businesses' health care expenses and home mortgage interest. A proper discussion would start with them. Employers' health care insurance for employees is a cornerstone of the new health care plan. Is that the best way to encourage business to continue to protect employees? Should we address the mortgage interest deduction, which contributed to the explosion of household debt and the housing bubble we still haven't escaped?

In our global economy, shouldn't we consider the value-added tax already in place in virtually every other industrialized nation? How many more companies must move their operations overseas to escape our 35 percent corporate tax rate before we alter that tax strategy? In a society with more older and able workers, should there be incentives for employers who hire older workers, or incentives for older workers to stay on the job?

Then there's the alternative minimum tax, a classic example of a tax provision that has become larger than the problem it was created to solve. Established 40 years ago to close loopholes exploited by a few dozen millionaires, the AMT now threatens 32 million taxpayers because Congress failed to adjust the law for inflation. That's just part of an array of options that should have been part of a national conversation, an impossible task now in the days before the witching hour.

Of course, the options are clouded by the fragile economy, which would be threatened anew if the tax cuts fully expire Dec. 31, and tax rates immediately explode. But even extending the cuts for a year or two deserves far more serious thought than it has received. For all of the hot air and hyperbole spewed today over the burdens of federal taxation, Washington's most enduring commentary on taxes can be found atop the Internal Revenue Service headquarters: "Taxes are what we pay for a civilized society." That was the measure taken in 1904 by then Supreme Court Justice Oliver Wendell Holmes. It's worth recalling today, when a civilized society deserves a civilized debate that has not been held.

Jim Toedtman is vice president and editor of the AARP Bulletin.

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