Belmont University

Is the Time Right for Tax Reform?

Tax Foundation President Scott Hodge recently published an article (it can be found here) on the opportunity he sees for federal tax reform during the next administration -- regardless of who wins. He puts it this way, "For the first time since 1986, the stars may be aligning for a grand bipartisan compromise on fundamental federal tax reform."

Tax reform and lower tax rates are critical steps to help keep our entrepreneurial economy expanding over the coming decades.

The article outlines what Hodge believes are the five basic steps for politically realistic tax reform:

Step 1: Eliminate tax exemptions and deductions.
Step 2: Make any tax reform a tax cut and tax simplification.
Step 3: Continue to shield low-income earners with a super-deduction.
Step 4: Make everyone a stakeholder.
Step 5: Fend off the special interests.

My take -- unfortunately any progress on simplification will inevitably get undone because politicians do not want to fend off special interests. Politicians live off of special interests -- the money from K Street is what makes Washington tick.


Posted by Jeff Cornwall on June 6, 2008 05:37 AM |

Comments

I unfortunately agree with your assessment.

I also think that special interests would easily confuse people and convince them that eliminating tax exemptions and deductions is "bad" and will "hurt" everyone, so it would be almost impossible to pass.

Did you read this recent Wall Street Journal editorial?

http://online.wsj.com/article/SB121124460502305693.html

"Mr. Hauser uncovered the means to answer these questions definitively. On this page in 1993, he stated that "No matter what the tax rates have been, in postwar America tax revenues have remained at about 19.5% of GDP." What a pity that his discovery has not been more widely disseminated.

The chart nearby, updating the evidence to 2007, confirms Hauser's Law. The federal tax "yield" (revenues divided by GDP) has remained close to 19.5%, even as the top tax bracket was brought down from 91% to the present 35%. This is what scientists call an "independence theorem," and it cuts the Gordian Knot of tax policy debate.

The data show that the tax yield has been independent of marginal tax rates over this period, but tax revenue is directly proportional to GDP. So if we want to increase tax revenue, we need to increase GDP."

Birdied by: LH | June 6, 2008 07:55 AM

It's always hard to get tax policies, especially those cutting taxes, to be pushed through legislation. People tend to cling to words like "cuts for the wealthy," etc.

I hope Mr. Hodge is right, however, and consolidation of our oversized and complex tax code is something we can look forward to.

Birdied by: David Grizzell | June 7, 2008 06:55 PM

Tap it in and Comment, Please

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