“Yes, Virginia, there is a Santa Claus.”

– Francis Pharcellus Church

Most U.S. citizens look on April 15 as the day to see the kitchen table again, to move those seemingly messy bundles of paper back from whatever piles of organization we have created into their proper folders to be forgotten for another year.

For many of us, it’s also a day to scrabble together enough cash to make the last payments due on our federal and state income tax returns.

But for a surprisingly large and growing number of citizens the process is about getting the return in but not about paying taxes.

It’s interesting, in this regard, to compare the increase in the number of people in Maine over the last several years with the increase in the number of federal tax returns filed in Maine.

In 2005, the U.S. Census Bureau estimated that Maine’s population grew by approximately 3,400 people. Over the same period, the IRS reported that the number of federal income tax returns filed in Maine increased by about 2,300 and that of those, the number with no tax liability increased by only 246. OK, nothing surprising here.

In 2006, the census estimated a population increase of about 3,300 – a slight drop from the previous year – but the IRS reported that the number of tax returns filed increased by nearly 13,000 and that the number of returns with no tax liability increased by nearly 7,600. Hmmm, this is interesting; slowing population growth accompanied by a big jump in tax returns. Something’s going on here.

In 2007 – the most recent year for which IRS data are available – the census reported a further slowing of population growth, with an estimated increase of only about 2,300 people. IRS data, in contrast, showed a virtual explosion in filings – an increase of almost 96,000 returns. And nearly 83,000 of these returns had no tax liability. Whooaa, this really is a change.

The reason, of course, is that the IRS has changed from being a tax collection agency to being the vehicle for implementing our social policies: residential energy tax credits, child tax credits, dependent care credits, earned income credits, the alternative minimum tax, mortgage interest deductions, charitable contributions deductions.

For rich and poor, the reasons for filing a tax return have become as much about sorting out our behaviors with respect to the wide variety of legislative incentives and penalties we have created over the years as it is about paying for public services.

Even as our population growth slows, the proportion of that population filing tax returns soars because the tax code has become the system for maintaining the required inventory of our personal behavior. Our federal tax code has become our version of the Ten (or perhaps Ten Thousand) Commandments. And the recently enacted health reform legislation will certainly accelerate this trend in ways we have only begun to realize.

Whether this change in the nature and purpose of our federal tax code works to enhance or endanger our experiment in democratic government depends largely on how rigorous we are in keeping our eyes open to what is going on, how well we face the facts.

Certainly the federal government is a better instrument for implementing regulatory and redistributive programs than state and local governments, where differentials in benefit levels and tax burdens lead to unproductive movements of people and money chasing artificial advantages.

If we as a country are going to make collective commitments to individual groups and our environment, better to do it nationally.

However the price of this commitment is eternal vigilance.

using the tax code to guide behavior we are creating interest groups. One man’s subsidy is another’s loophole.

Making spending and investment decisions increasingly at the level of the federal government increases centralized power at the expense of decentralized individual liberty.

If we fall asleep thinking Uncle Sam is just a Santa Claus every ready to shower us with whatever goodies we want, we are deluding ourselves and endangering our democracy with increasingly bitter fights over the division of a pie fewer and fewer are working to grow.

A commitment to social justice is just that, a commitment, faced squarely with a full knowledge of what is its cost and who is paying the bill.

 

Charles Lawton is senior economist for Planning Decisions, a public policy research firm. He can be reached at:

[email protected]