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The Real Loser from Tax Reform

From my article in American Thinker, Save the Swamp:

I call the difference between the statutory rate and the actual rate the ‘special interest spread’.  It is the difference between the official stated rate and the actual rate paid after deductions and credits.  True tax reform should seek to reduce this spread to zero. 

But there remains a great benefit to meaningful reform in the form of simplification.  The influence of the Federal government is less because of its growth in size that because of its proxies in the private sector. Nonprofits, state and local agencies, and special interests do the work of the federal government and much of this is done through tax preferences and benefits. These proxies will all be fighting to retain their part of the swamp. 

Taxes should be low and broad based, as simple and as permanent as possible, while minimizing the ‘special interest spread’ and the marginal rate.

Such a reform castrates much of the federal power over the economy, requiring the separation of operating revenue requirements from their desire to engineer and design social outcomes. Any transition to such a system will not be equally shared and there is no need to pretend otherwise.  Many who lose their mortgage deduction will make it up in lower rates, but some will not. This is the problem with reforming complicated systems with an accumulation of special provisions.

The benefit to the economy, however, would be so strong that those who are comfortable in the swamp should not be allowed to derail it. 

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Category: Economics, Politics, Taxes

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