In President Bush’s press conference of November 4, 2004, our fearless leader stated that, “We must reform our complicated and outdated tax code.” And reform it the government has certainly done. The Oxford English Dictionary suggests a wide range of possible definitions of the word “reform.” The two most relevant to this year’s changes in the tax code are: (a) “To make a change for the better in (an arrangement, state of things, practice or proceeding, institution, etc.); to amend or improve by removal of faults or abuses,” and (b) “ironically: to alter to a worse state.” Which kind of “reform,” then, has been made to the tax code?
A Wall Street Journal article by Tom Herman (published on March 1; available in non-expensive online format here) suggests that, at least with respect to the definition of children for purposes of various tax credits, the reform in question was of the making-everything-worse variety. Evidently, the current tax code provides a uniform definition of “child” for a variety of different purposes — whereas past codes used different definitions for each purpose.
This seems like a move toward simplicity and, perhaps, fairness. Until the actual definition is read, and some consequences of it are considered. Evidently, your child is anyone who is your:
son, daughter, stepchild, eligible foster child, brother, sister, half brother, half sister, stepbrother, stepsister or a descendant of any of them. The child must be under age 19 at the end of the year, or under 24 at the end of the year and a full-time student — or any age if permanently and totally disabled. The child must have lived with you more than half the year (although there are some exceptions, such as children who were born or died during the year). The child must not have provided more than half of his or her own support for the year.
One consequence of this rather counterintuitive definition of a child is that some wealthy families are now able to qualify for the Earned-Income Tax Credit and other exemptions designed for poor families. The Wall Street Journal article gives the following example:
A couple with two children living at home — a 14-year-old daughter and a 22-year-old son — file a joint return with adjusted gross income of $400,000. At that level of income, the parents don’t get any tax benefit from claiming the daughter as a dependent. On the other hand, the son, who has $15,000 in wages and isn’t a full-time student, can claim his sister, enabling him to receive the child-tax credit and earned-income tax credit. Assuming he had no tax withheld, this turns what would have been a balance due of $683 on his return to a federal income-tax refund of $3,158.
I don’t enjoy paying taxes any more than anyone else does, and I feel a certain temptation to say, “Good for the aimless live-at-home 22-year-old!” After all, this tax trick really feels like getting away with something. But in financial discussions, one person’s windfall gain is almost always another’s windfall loss. (Or, translated into cliche, “You can’t get something for nothing. There’s no such thing as a free lunch. Somebody’s got to pay the piper.”) In this case, one set of victims includes some of the poor families for whom the EITC and other tax breaks for children were invented in the first place. A second scenario discussed in the article is as follows:
A 20-year-old woman who works at a minimum-wage job and attends school full time is the legal guardian of her 15-year-old brother. Because of complex rules in the new tax law, the woman can’t claim her younger brother for the earned-income tax credit, even though she would have been able to do so under the old tax law.
So, in effect, this year’s tax code changes have surreptitiously transferred tax credits from some profoundly needy families to other, remarkably affluent households. This set of changes, in conjunction with the other tax cuts passed with rather more fanfare over the last five years, suggests to me that the Book of Mormon has become sadly out of date with modern American morality. Let me conclude with a quotation from chapter 4 of Mosiah, taken from the George W. Bush translation:
And also, ye yourselves will succor those that stand in no need of your succor; ye will administer of your substance unto him that standeth in abundance; and ye will not suffer that the wealthy person putteth up his petition to you in vain, and turn him out to spend his own money. Perhaps thou shalt say: The man has brought upon himself his affluence; therefore I will stay my hand, and will not give unto him of my food, nor impart unto him of my substance that he may not suffer from high taxes, for his tax rate is just–but I say unto you, O man, whosoever doeth this the same hath great cause to repent; and except he repenteth of that which he hath done he perisheth forever, and hath no interest in the kingdom of God…. And now, for the sake of these things which I have spoken unto you–that is, for the sake of retaining a remission of your sins from day to day, that ye may walk guiltless before God–I would that ye should impart of your substance to the rich, every man according to that which he lacks, such as feeding the foodies, clothing the fashion models, visiting the famous and administering to their egos, both spiritually and temporally, according to their wants.