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Tax policy cannot be developed if those involved communicate interests with half-truths. Half-truths have become rampant in political discussion because of the pressures of partisanship and an adversarial system. Disagreements are essential, but progress is possible only with trust and truthful discussion among participants. Such collaborative trust is evident in a scientific community and should exist in a political community.

The public can monitor the activities of nonprofits and reduce the IRS enforcement burden when exempt organizations' tax forms become available on the Internet. The IRS commissioner should ensure efficient delivery of accurate nonprofit tax information and public access to it. The IRS can improve service and save costs if public monitoring of exempt organizations increases.

The Nonprofit Accountability Collaborative is leading the effort to make nonprofit Tax Forms 990 publicly available on the Internet. Public access to the forms is required by law, but fulfilling the requirement is often an expensive burden for nonprofits. In 1998, several technological problems such as graphic scanning need to be solved before Internet access becomes available. Eventual access is a certainty.

Spending future tax surpluses is not a new policy to 1998 US government. It only seems new because since the 1970s managing deficits has been the norm for tax policy. Before the 1970s, considering tax surpluses in planning future expenditures was normal. The key consideration is that expenditures should be responsible and no new tax or expenditure policies should be created to place an undue burden on future generations.

Legislators must recognize that laws cannot define the boundaries for all activities and must live within the tension of that uncertainty rather than continually creating new laws or deregulating. Laws that have restricted tax shelters, deductions for lobbying efforts and price transferring for intellectual and technological activity often operate in ill-defined areas. It is better to have them imperfectly defined than not defined at all.

Congress increased the amount of long-term deficits to the US budget through its use of tax giveaways written into the 1998 IRS restructuring bill. Congress, instead, should be utilizing the expected budget surpluses by expanding some current budget costs while planning long-term spending constraints. The budget law should be revised, guiding Congress to decrease long-term losses despite the potential for short-term losses such a revision could manufacture.

Simplifying the pension system is difficult because the system has become complicated by the accumulation of many ostensibly simple rules that affect a limited number of people. True simplification would involve as few rules as possible for as many people as possible. Such rules should relate to exceptions for withdrawals and deductions for employer contributions to pension plans.

Reducing marriage penalties in the tax system is a partial solution to an inequitable situation. Proposals affect only the middle class and do not address the lower or upper classes. Society needs to decide whether the same tax should be paid by individuals or households in similar income brackets. Reform should not ignore the costs of change.

Numerous reforms of the IRC from 1977 to 1998 have resulted in little change to tax burden distribution. The tax code in 1998 was minimally more progressive than it was in 1977. The lowest income bracket received the greatest tax relief and fell from a tax rate of 9.2% to 4.6%.

Tax policies may cause segments of American society to change how they live. Social security benefits might be encouraging people to retire earlier than did their predecessors, and welfare programs might be encouraging people to live and work outside of the economy. The intent behind tax policy may have a ripple effect on lifestyles as much as an implemented government program.

A drop in stock market growth reflecting true corporate earnings may result in people and institutions realistically assessing the differential tax rates applied to capital income. Effective tax rates may surprise many and encourage further tax reforms. Effective rates range from 62% on individual checking accounts to nothing on pensions and dividend-free stocks.

The primary tool the Senate Finance Committee and Congress had in 1998 to correct taxation problems and problems with the IRS was by simplification of the rules. In order to proceed, however, the lawmakers would have had to reflect on the complexities and then act with unflinching honesty. The IRS remained frustrating because simplicity was never brought into the rulemaking process.

The increase of retirement age workers may not induce higher social security payroll taxes if people of retirement age continue to work, thus roughly maintaining the present ratio of taxpayers to benefit recipients. Retirees withdraw not only the costs of their benefits from the social security system, they withdraw tax their contributions. The longer people of retirement age remain employed, the longer they can support a system which will aide them when they cannot work.

The IRS should issue a public report providing information on taxpayer errors in preparing income tax returns. The increase in tax rules and their complexity after 1997 legislation should oblige the government to inform taxpayers of potential sources of error such as not filing Schedule D for distributions of capital gains. The IRS has been reticent about studying and publicizing the issues of noncompliance and errors. The congressional taxwriting committees should institute hearings to address this issue.

The arithmetic of social security reform can be summed up with simple math. When the baby boomers reach retirement age from 2011 to 2032, the number of workers to benefit recipients falls from 3-to-1 to less than 2-to-1. In order to overcome this debilitating reality to the pay-as-you-go system, and to avoid drastically raising taxes, the retirement age should be delayed and retirees should fund more of their retirement needs.

Those who argue the US can create great amounts of future wealth by saving moderate amounts today might argue the Louisiana Purchase was a bad deal. Had the US invested the $15 million it spent on the purchase in 1803, it would have earned $2 quadrillion by 2000.

Practical considerations should guide the balancing of interests favoring and disfavoring sunset tax and expenditure provisions. Three major distinctions can be made toward this end including distinctions between sunsetting programs and controlling their growth rates, periodic and annual assessments, and institutional and subsidiary elements.

Marriage penalties do not exist as separate items in the tax code and cannot be easily rectified. Marriage penalties exist as a consequence of tax polices that affect all people. Marriage penalties can be corrected only by considering all direct and indirect taxes on household resources and tax rate schedules. In a system where tax rates fluctuate often, it is difficult to find a simple solution for fixing marriage penalties.

Those who wish to change tax marriage penalties must understand the impact removing penalities would have on marriage bonuses, such as reduced taxes or additional Social Security subsidies, and on a progressive income tax. Marriage penalties are inequitable and encourage distrust of the government. If reformers cannot confront the difficult issues of tax progressivity and marriage bonuses, marriage penalities will continue and perhaps grow.

Pres Bill Clinton's statement in the 1998 State of the Union address that the budget surplus should be used to ensure a strong social security program has in one move set and economic and budgetary agenda. Congress will not be able to make any new tax cuts or budget increases without presidential approval. Reforms in the social security system that have been long needed will be pushed to a more important place on the political agenda.

The tax expenditure budget can be an important analysis tool but items listed on the budget can be misleading and incomplete. The budget offers an understanding of government subsidies hidden in the tax code and clues to tax reform, but the value of expenditures is often difficult to ascertain. Nontaxable expenditures, the lack of tax expenditure estimates for such items as public education, and inexact accounting due to factors such as inflation can all undermine the transparency of the tax expenditure budget.

The tax expenditure budget could become an excellent tool for tax reform if the performance goals of The Government Performance and Results Act of 1993 were more comprehensively incorporated in the Treasury Department. The tax expenditure budget itemizes the value of tax benefits. The Government Performance and Results Act of 1993 requires US government offices to develop performance goals. Performance goals could be used to analyze the effectiveness of tax benefits, and reveal inequity, inefficiencies, and unnecessary complexities in the tax code.

Common principles should be applied when discussing what and how to institute child care proposals made by members of Congress and the Clinton Administration. Principles are necessary to ground discussions in reality, practicality, and reasonableness. Reference to examples of how principles can be applied to issues such as progressivity may be useful.

President Bill Clinton's budget policy agenda contains many elements that have negative indirect consequences to the process of federal policy-making. The agenda includes child care oriented tax credits and subsidies, expansion of certain Medicare provisions, and budget balancing proposals. Long-term Medicare changes, burdens to congressional taxwriters, and confining other policy efforts are negative effects resulting from the agenda.

An accounting system which could provide the public with information regarding a nonprofit organization's benefit to the public interest could be instituted and would be particularly useful in the hospital sector. The system should take into account sources and uses of all the organization's resources. How efficiently resources, such as medical labor, are used may be as important as the quantity of resources controlled.

Randall Mariger supports his argument that front-loaded and back-loaded IRAs have equivalent after-tax results by using a set of assumptions that may not be true. The tax system should not be changed based upon untested theoretical assumptions. Real world unfairness resulting from problems such as borrowing or manipulation is possible with back-loaded IRAs. They remain a bad idea with their real-world ability to be taxed according to their deposits rather than their earnings.

Deficit reduction planning would not be necessary in a perfect world where government serves and protects its citizens and does not see cutting its own expenses as a primary function. The Congressional Budget Office is able to do second best in its next issue of 'Reducing the Deficit' because it will provide options for long-term deficit planning. Long-term planning is preferable to the short-term planning which was the norm from the mid-1970s through the subsequent 15 years.

US economic policy should be defined by long-term goals and not the short-term budget-balancing goal which results in variable reductions and increases in taxes. A balanced budget goal results in fiscal policy being dependent on the fluctuations of economic cycles. Congress has become so accustomed to making policy on the basis of the size of the budget that it is at a loss for goals in Dec of 1997 when the deficit is zero.

Fiscal policy which takes into consideration taxes and expenditures is important in both the long and the short term. Long term policy includes deficit reduction plans taking into account future years. Short term policy includes cutting taxes to stimulate the economy. Both types of policy can be automatic or discretionary, with the slower discretionary policy's advantage of being able to adjust to unanticipated changes.

Reform of the social security system cannot be concentrated in the White House where only basic strategies and goals should be formulated. An accountable commission composed of up to four members of opposing political parties and a varied technical support staff could draft plans for a limited number of options chosen by the politicians. The President's function should be to set goals and communicate them to the public.

The regularly published lists of options for deficit reduction and expenditures issued by the Congressional Budget Office and the US Treasury Dept with the Joint Committee on Taxation serve as models for a tax simplification list. Regular publication of such a list would be valuable to lawmakers preparing for reform and could instigate reform. A list of simplification options should take into account legalities, economies, and accounting rules for each option.

The proposed addition of a partly private sector IRS board to the executive branch is one among many such executive branch additions. Such boards can be valuable if nonpolitically appointed board members are allowed to speak freely, produce material results rather than bureaucratic paperwork, and hold government officials accountable. The boards can also be of value acting as ombudsmen between their agencies and the public.

The Office of Management and Budget (OMB) and the Congressional Budget Office (CBO) forecast economic growth or decline and the respective accompanying revenues or deficits by using techniques which consistently cause their estimates to vary from reality. The offices' techniques level out predictions over a period of time, creating a sort of average, making them always slightly off and never predicting extreme changes of recession or growth. The current forecasts are true to form.

Projected federal budget surpluses should not be currently spent whether the projection is for large or small surpluses. Even if the projections are not faulty per se, the projections do not take into account baby boomer generation retirement or national and international emergencies. Budget surpluses are more prudently spent on paying current debt.

The provision in the Treasury Postal appropriations bill for FY 1998 calling for up to $3 incentives for electronic filing of tax returns is a good shift in IRS philosophy from punishment to encouragement. This payment could encourage taxpayers to use electronic filing, which is cheaper and less prone to errors, while making them feel good about the filing process. Also, the IRS would have easy access to more information for its studies if returns were electronic, such as charitable organizations' returns.

The Taxpayer Relief Act of 1997 includes some provisions that meet tax simplification goals but most of the policies in the Act fail to meet standards of optimal policy, meaning making the best compromise among tax principles. Tax principles include equal treatment, efficiency, simplicity, sufficient revenue raising and progressivity. Examples of suboptimal policies include educational savings in the tax code rather than through the Education Dept, which is better able to administer educational assistance; and attempting to improve capital gains taxes by making them more complex.

The Taxpayer Relief Act of 1997 fails to find a reasonable compromise between the contradictory tax policy principles and so is a suboptimal tax law. Tax principles hold that tax law should be efficient, equitable, progressive, simple to administer and able to raise revenues. Conflicts can arise between taxing the wealthy more while benefiting the poor more, the necessity of complexity to address equality issues and distortions of savings rates, among other issues. However, an optimal law finds an acceptable compromise where the principles overlap and conflict is minimized.

The US tax system is made up of consumption and income taxes but the creation of the back-loaded individual retirement accounts (IRAs) has added a head tax which will benefit the wealthy with money to save. These IRAs are taxed when the money is put in them, but all growth is tax free. Therefore, savers who can risk more are more likely to benefit than individuals able to risk less or those who do not have funds to save. This differs significantly from the philosophy of consumption and income taxes which both tax success rather than taxing everyone the same regardless of income.

The back-loaded IRAs created in 1997 were promoted as savings incentives that would not cost the government. However, this perception is based on flawed economic forecasting because of the use of a simplified economic formula that fails to reflect reality. The main assumptions of the economic forecast are analyzed, revealing that the government's cost for these IRAs is likely to be significant in the long run. Also, the primary beneficiaries will be taxpayers in the high-income brackets.

The enactment of a $500,000 gain exclusion for the sale of owner-occupied housing and the removal of the gain deferral on expensive houses in 1997 is likely to encourage the rich to move frequently or not at all. People with houses worth around $1 million at purchase could move every six to eight years to still be within the $500,000 exclusion. This would generate $125,000 in tax reduction, providing an incentive to move. Alternatively, people with expensive houses will be locked into their houses until death when the gains are all eliminated.

A compromise approach might be the best way to reach consensus on the plans to reform the IRS organizational structure. Clearly, the proposed board of directors will only be effective if there is a built-in degree of accountability. A group of trustees, similar to those overseeing Social Security, might be a better solution than the proposed board of directors. Any solution must acknowledge the importance of tax administration and policy in the overall structure. However, the type of interagency group favored by Treasury usually fails to address the real issues.

The proposed board of directors for the IRS is an idea with both merit and disadvantages. The board might do a better job on tax administration issues than the Treasury. However, the board might be hampered by the type of weaknesses inherent in any committee system, and could well become plagued by conflicts of interest and accountability problems. The Treasury and National Commission on Restructuring the IRS should push to reach a compromise on this idea.

The line item veto, which Pres Bill Clinton used for the first time in 1997, offers the President the opportunity and the responsibility to control government spending. Past Presidents have blamed Congress on budget deficits. The line-item veto will allow a President to control deficits. The manner in which Clinton uses the power will also influence its use by future Presidents.

Both Republicans and Democrats have succeeded in enacting substantial parts of their tax agendas, and must look to other areas for relevant issues. Older tax issues, tax reform, or entitlement reform could become significant issues. Politicians would do well to look at state-local government issues, lower-income class tax rates or marriage penalties, middle class savings, private pensions, wealth creation, youth policies, or environmental issues for topics likely to strike a chord with the public.

The 1997 budget agreement has created a vacuum in tax policymaking for members of both political parties, since both have accomplished many of their decades-old goals. The GOP can claim success in their long-time efforts to reform welfare, slow expenditures, balance the budget, and reduce income and capital gains tax rates. Democrats similarly can claim success in reducing defense expenditures, expanding public assistance through tax measures, deficit reduction, and preserving most New Deal programs as well as the tax system's progressivity.

Taxpayers are going to be confronted with several unpleasant realities when they have to file returns affected by the 1997 tax bill. The forms will become more complex due to intricacies in claiming the child credit, educational assistance incentives, and reporting taxable capital gains. The American Dream Savings Accounts will also create complicated planning, filing, and tracking situations. Congress and the president should review mock-up tax forms before passing radical changes which needlessly complicate the filing process.

Medicare benefit taxation and reduction in subsidies to wealthier seniors could be acheived through several methods. A system of fees based on annual income would be complicated, but a fee system based on lifetime earnings would be more acceptable by recipients and easier to administer. However, the best choice would be to reduce the Medicare growth rate by providing lower- and middle-income recipients with increased cash benefits while simultaneously cutting back on program costs.

The proposal to tax wealthier elderly people on their Medicare benefits may be difficult to implement. This approach has been chosen for its political acceptability, but the plan's backers have failed to realize that phase-in requires designing a new system that can be administered and enforced both successfully and easily. Medicare beneficiaries should realize the heavy cost of their benefits, but shifting the tax burden on the basis of income is much more complicated than Medicare reformers comprehend.

Tax simplification remains an impossible goal because the politicization of the tax legislative process. Simplification could be achieved by mandating testimony on administrative or complexity issues be provided when considering proposed tax legislation. Dummy tax forms incorporating proposed legislative changes might also prove useful. Legislators would then have to deal more directly with the consequences of their tax proposals.