Tax Analysts Blog

Why Liberals Should Like Tax Reform

Posted on Dec 15, 2010

Tax reform is one of those feel-good ideas that everyone likes. And recently, we've been hearing a lot about it. President Obama's blue-ribbon debt commission (do commissions come in any other color?) floated a couple of different plans for revamping federal revenue. So did a similar panel sponsored by the Bipartisan Policy Center, as well as a couple of other policy groups. And while there was much griping about the details, there was plenty of praise for the idea: taxes need change. Big change. Fundamental change. And soon.

But not everyone jumped on the bandwagon. Skeptics piped up from both ends of the political spectrum. A few conservatives, for instance, suggested that traditional tax reform -- trading loopholes for lower rates -- was a fool's bargain. After the 1986 experiment with this sort of reform, the loopholes stayed gone but the rates crept back up. That's why Grover Norquist created his famous Taxpayer Protection Pledge. As Americans for Tax Reform explains, "supporters wanted assurances that their support for a broader tax base in exchange for lower tax rates would not be betrayed by higher tax rates later (which is, in fact, exactly what happened in 1990 and 1993)."

A few liberals have also been dubious of calls for sweeping reform. Dean Baker contends that real reform is pretty much impossible as long as Wall Street has the entire political class on its payroll. "The items that matter most to the rich and powerful will not be called into question because their interests are being protected," he writes. Protected, that is, by government officials hoping for a lucrative private sector gig after they finish burnishing their resumes (I mean serving the public).

I understand why conservatives are dubious about tax reform. As I noted in a recent article for Tax Notes, the 1986 tax reform did make the system more revenue buoyant. And that exactly why liberals should like it.

Dean Baker is right. Any sort of tax reform that actually emerges from the political system will be compromised -- morally, politically, ethically, and economically. It will be a half-measure, maybe less. And it will certainly be filled with all the requisite sweetheart deals necessary to get it passed (and to get lawmakers re-elected). But if it's anything like the 1986 version of tax reform (which was also filled with compromise), it will pave the way for more revenue.

And if you're a liberal -- or even a moderate opposed to radical downsizing of the federal state -- then that's the name of the game. In the hard years ahead, the only progressive priority really worth fighting for is more revenue, not better revenue. Republicans never managed to starve the beast (or never really tried, to be accurate). But bond markets will starve it, eventually, unless liberals can turn up enough cash to pay the bills. Tax reform will help with that. So my advice to (fellow) liberals: swallow hard, tolerate compromise, and get it done.

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