Tax Analysts Blog

Get Tax Reform Out of the Budget Debate

Posted on Apr 7, 2011

As somebody who has spent his professional career advocating for tax reform -- that is, lowering the rates and broadening the base-- I welcome any excuse to give the topic some attention. But recent developments make it more clear than ever that politicians are taking advantage of citizens' desire for a reformed tax system.

Rep. Paul Ryan, Chairman of the House Budget Committee, is floating his budget plan that would drastically cut spending. He deserves praise because he is being frank about the need for large cuts in Medicare and Medicaid if we are not going to cut taxes. (And Democrats deserve all the criticism they get for not proposing a plan to restore soundness to federal finance.) But the inclusion of tax reform in his plan--corporate and individual rate reduction to 25 percent and elimination of unspecified tax expenditures-- serves no purpose but his own. It is revenue-neutral reform. If it is not going to affect the budget, it plays no real role in the budget reconciliation process. It is an attractive distraction from the pain of the huge cuts he is proposing.

Bowles-Simpson and other big deficit reduction efforts like to use the term "tax reform" (and indeed they do propose lowering rates and broadening the base) but--despite all the praise for former Senator Simpson's plain-spoken manner--he and other deficit hawks will not utter the words "tax hike." If they will not educate the American people on this point, who will? Certainly not elected politicians.

Just the other day, veterans of the Tax Reform Act of 1986 had a reunion of sorts here in Washington DC. ("Baker, Gephardt Urge Tax Reform Decoupled from Budget Debate") They emphasized what Ronald Reagan emphasized. Because tax reform is difficult enough, the process must be simplified and separated from other pressing issues: tax reform should be revenue neutral.

And if tax reform does not affect the deficit it has no substantive role in the debate about rising deficits.

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