June 30, 2013
Tax Reform From Scratch
Baucus and Hatch start their rewrite with the right principle
Lost amid last week's tumult over Edward Snowden and the Supreme Court was a glimmer of hope for tax reform. The Senate's two main tax writers, Democrat Max Baucus and Republican Orrin Hatch, announced the principle that they are going to rewrite the tax code from scratch and that the supporters of every tax preference will have to justify its continuation.
This is the right principle, both as tax policy and reform politics. The goal of tax policy should be to meet the revenue needs of the government with the lowest rate possible and the fewest economic distortions. Starting with a blank slate helps to show how low the rate can be with a tax code unencrusted by the barnacles of the Beltway.
As a political matter, the tabula rasa principle plays no favorites and forces the Senators on the Finance Committee to judge one tax preference against another and decide which ones matter the most.
"Every $2 trillion of individual tax expenditures that are added back to the blank slate would, on average, raise each of the seven individual income tax brackets by between 1.3 and 2.2 percentage points from what they would be under the blank slate," said the two Senators in a letter to their colleagues. "Likewise, every $200 billion of corporate tax expenditures that are added back to the blank slate would, on average, raise the top corporate income tax rate by 1.5 percentage points from what they would be under the blank slate."
The prospects for tax reform continue to be slim because President Obama is insisting on another huge tax increase after the one he imposed in January. But Messrs. Baucus and Hatch deserve credit for trying, despite the lack of Presidential leadership.
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