As I said in a previous post, I've always been fairly skeptical of the entire project of 'tax reform.' Greg Sargent suggests that no one really wants tax reform-both liberals and conservatives just want their version of it-and I think that's right.
"both parties appear to have essentially unrelated policy goals that they would like to achieve through tax reform. Democrats want to increase overall revenues; in fact, Democratic wonk Jared Bernstein today calls revenue-neutrality the “tax reform trap.” Republicans aren’t as specific about it, but it’s pretty clear they want a less progressive system — fewer tax brackets, and changes which are much more helpful to the wealthy than to middle class or poorer Americans."
http://diaryofarepublicanhater.blogspot.com/2013/07/does-anyone-really-want-tax-reform.html
So to his question-'does anyone really want tax reform?-I would tend to say at best 'I don't know.' Sargent says that to achieve it both sides would have to compromise:
"To get anything done, both sides are going to have to give up any additional goals. For Democrats, that means waiting for revenues. And that’s not impossible; after all, taxes went up twice in the years after the 1986 tax reform passed"
"And for Republicans, it may mean accepting more brackets, not fewer, in order to protect progressive taxation. Remember, there’s nothing “simplifying” about fewer tax brackets. No one calculates their tax themselves, and they won’t with anything more complex than a full flat tax that begins with the first dollar earned. Complexity in the tax code comes from exclusions and deductions, not from the basic rates.."
"both parties appear to have essentially unrelated policy goals that they would like to achieve through tax reform. Democrats want to increase overall revenues; in fact, Democratic wonk Jared Bernstein today calls revenue-neutrality the “tax reform trap.” Republicans aren’t as specific about it, but it’s pretty clear they want a less progressive system — fewer tax brackets, and changes which are much more helpful to the wealthy than to middle class or poorer Americans."
http://diaryofarepublicanhater.blogspot.com/2013/07/does-anyone-really-want-tax-reform.html
So to his question-'does anyone really want tax reform?-I would tend to say at best 'I don't know.' Sargent says that to achieve it both sides would have to compromise:
"To get anything done, both sides are going to have to give up any additional goals. For Democrats, that means waiting for revenues. And that’s not impossible; after all, taxes went up twice in the years after the 1986 tax reform passed"
"And for Republicans, it may mean accepting more brackets, not fewer, in order to protect progressive taxation. Remember, there’s nothing “simplifying” about fewer tax brackets. No one calculates their tax themselves, and they won’t with anything more complex than a full flat tax that begins with the first dollar earned. Complexity in the tax code comes from exclusions and deductions, not from the basic rates.."
For me there are two issues. I don't really see what we get by this 'tax reform' if there's no increase in revenue. Yet, I'm also skeptical that 'tax reform' will even be revenue neutral-while not seeing what is gained for liberals even if it were.
Jared Bernstein makes the point that 'blank state tax reform'-where each 'tax entitlement' has to justify itself-rather than naming specific entitlements that are to be cut-is trap. What we're likely to see is lower rates but also less revenue.
He also links to a crucial paper on how this whole line of argument is a trap.
" Policymakers are increasingly discussing the need for tax reform, with a number of them calling
for large cuts in tax rates — to levels well below the Bush tax rates — as a core element of reform."
"They contend that sweeping but unspecified cuts in tax expenditures (credits, deductions, and other
tax preferences)will offset the cost of deep cuts in tax rates and, depending on the proposal,
possibly generate some revenue to reduce deficits. Many who favor this approach go a step further
and call for policymakers to commit to specific cuts in tax rates before they agree on any specific tax
expenditures to reduce."
"Such approaches pose big risks. They could produce tax “reform” that increases both deficits and
inequality because while cutting “tax expenditures” sounds appealing in the abstract, cutting specific
tax expenditures enough to offset the costs of substantial new rate cuts and contribute meaningfully
to deficit reduction would likely prove difficult, if not impossible, to achieve. Indeed, the difficulty
of cutting popular tax expenditures — from the mortgage interest deduction to 401(k) tax
preferences to the deduction for charitable contributions to the exclusion for employer-sponsored
health insurance — is why those who urge policymakers to commit upfront to specific, large rate
cuts rarely specify any tax expendituresto cut. In fact, they often highlight tax expenditures that
they would refuse to touch, such as the preferential tax rate for capital gains."
"The 1986 Tax Reform Act, which tax experts often laud, cut tax rates and broadened the tax base
and, all else being equal, the “lower the rates and broaden the base” formula is economically sound.
But all else is not equal today; the nation faces enormous long-term budget deficits that will require
wrenching policy choices, and all parts of the budget — very much including revenues —must be
on the table. Given our daunting long-term deficits, the single most important goal of tax reform
should be to raise substantial revenue, in a progressive manner, as part of a balanced deficitreduction policy."
If anything, I'm not a fan of all the lionizing the 1986 'tax reform' gets. It actually was very regressive-it lowered the top rate down to 28% and had just one other rate-15%. It was very close to a flat tax. The only saving grace is that it did get rid of the entitlement on capital gains rates as this number went up to the same rate as the income rate. Of course, in this round conservatives are ruling out raising the capital gains tax in principle.
'Entitlement cuts' sound good in theory but in practice no one wants to lose theirs. This is why conservatives continue to use the Mitt Romney strategy of not discussing even on specific entitlement cut they desire but say 'Ok justify which ones we should keep.' It's a nice back door way of lowering rates and not getting more revenue.
One other point that could be quibbled with in the above quotes is that our 'long term deficits are so daunting.' Actually they're coming down. I do agree with the imperative to raise revenue however, for our structural deficits, and more generally in principle, I support a progressive tax code that raises sufficient revenue for a generous welfare state and necessary social spending. Bernstein's rules for discussing 'tax reform'-you see how skeptical of this term I remain-are sound:
1) chose a revenue target, one that reliably reduces the deficit once the economy is back on track;
2) figure out the rates and base needed to hit that target;
3) ensure that a) a majority of policy makers accept the base broadeners and b) the changes do not make the code less progressive;
4) only then, once progressive base-broadeners and a deficit-reducing revenue target are locked in, should lower rates be considered. If the lower rates violate any of the prior conditions, they must be rejected.
UPDATE: I should point out that the above quote paper was written prior to the fiscal cliff deal. My point that deficits are not so pressing wasn't so clear then-it's based on CBO numbers and projections we've seen since.
UPDATE: I should point out that the above quote paper was written prior to the fiscal cliff deal. My point that deficits are not so pressing wasn't so clear then-it's based on CBO numbers and projections we've seen since.
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