The Taxonomist

Lots of career employees at the IRS were annoyed at the partisan tone of
the tax-rebate letters the agency mailed out in July. The IRS has a long
apolitical tradition, and its workers felt uncomfortable with a letter that made
them appear to be shilling for Republican policies.

We are pleased to inform you that the United States Congress passed and
President George W. Bush signed into law the Economic Growth and Tax Relief
Reconciliation Act of 2001, which provides long-term tax relief for all Americans
who pay income taxes.

The new tax law provides immediate tax relief in 2001 and long-term tax relief
for the years to come. As part of the immediate tax relief, you will be receiving
a check in the amount of $____.

Some Democrats in Congress objected to the letter, and New York
Senator Charles Schumer even tried to cut off funds for the mailing. But in the
end, the IRS itself found a way to even the score--by sending out a second>/I letter to 32 million tax filers who won't>/I___ get any rebate. It starts with the
same cheerful "We are pleased to inform you" paragraph, but then continues:
"According to the information on your 2000 federal tax return, ... you will not
be receiving a check at this time."

Charitable Cheese

As part of his "charitable choice" initiative, President Bush promised
to let people who don't itemize on their tax returns nevertheless deduct their
charitable donations on top of their standard deduction. The administration has
defended this particular piece of tax complexification based on a fanciful study
by Pricewaterhouse-Coopers that claims the new write-off would boost donations by
$15 billion a year.

No matter that the new deduction would be worth a mere 15 cents on the dollar
or less for the vast majority of affected taxpayers. Or that most of the
$8-billion annual cost would merely reward contributions that are already being
made. Or that such a tax break has been tried before, as part of Ronald Reagan's
1981 tax-cut act. And never mind that by 1984 Reagan's own Treasury Department
was recommending its repeal, asserting that the effect on charitable giving was
"not expected to be significant" because of the low marginal income-tax rates paid
by most non-itemizers. (It was repealed.)

Now House Republicans, whose reverence for Reagan's errors is matched only by
their disdain for his occasional good judgment, have passed a pale version of
Bush's charitable-deduction proposal--his original proposal being too expensive,
thanks to the giant 2001 tax-cut act. The ploy is partly intended to lay the
groundwork for something bigger in the distant future, but its main purpose is to
give Bush political cover for failing to deliver on his foolish campaign pledge.

Under the House-passed bill, individuals would be able to deduct only $25 a
year, which would save the typical non-itemizing taxpayer in the 15 percent
bracket a mere $3.75. (Couples could deduct up to $50, saving $7.50.) By 2010 the
maximum deduction per taxpayer would rise to $100. For couples, that could be a
tax cut of as much as $30. Whoopee!

White House press secretary Ari Fleischer has played along with the charade,
telling reporters that the House's token deductions represent "much of what" Bush
sought. Although technically a lie, in a sense that's probably true, since the
original proposal's chief goal was to reinforce Bush's "compassionate"
credentials. Indeed, from a fiscal point of view, one could argue that the House
plan is a big improvement over its predecessor: After all, if the government is
in effect going to throw money off buildings, then the less thrown, the better.

But the revised charitable plan is worse than an empty gesture. The tiny
write-offs the bill envisions don't just add new complexity to tax filing: They
also can't possibly be audited by the IRS. In fact, the $6.4-billion official
estimate of the new plan's 10-year cost quite reasonably assumes that almost
every non-itemizing taxpayer will deduct the full allowable donation, whether
made or not.

Had House Republicans simply proposed a straightforward (albeit small)
increase in the standard deduction, the only objection would be cost. But making
taxpayers jump through new hoops and encouraging some people to lie--however
pettily--to get what amounts to a bigger standard deduction is bad policy.

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