Let me say some words sure to make you swoon: Tax Reform.
I know; I know. You’re swooning, but it’s more likely from stupefying boredom than from ardent passion. Assuming you’ve even made it past that sleepytime first paragraph, you may already be suffering from increased drowsiness and slower metabolic cycles. If you’re a politician, you might well be fast asleep.
And that last bit worries me. As near as I can tell, tax reform is getting ignored in the political arena precisely because it’s too sensible. At the buffet table of election-cycle rhetoric, the most popular items are the juiciest -- words like Ponzi Scheme, Class Warfare, and Throwing People Under a Bus. Tax Reform is the nondescript jar of bran, attracting nobody’s attention, but absolutely necessary to make things flow smoothly.
In 2010, President Obama set up an independent commission to identify “policies to improve the fiscal situation in the medium term and to achieve fiscal sustainability over the long run.” One of the star ideas in its report (known as Simpson-Bowles after the committee’s co-chairs) was to simplify our nation’s labyrinthine tax code.
They gave lots of good reasons. For starters, the report found embedded in the tax code $1.1 trillion worth of “tax expenditures,” a mildly disguised form of government spending that benefits certain groups by requiring fewer taxes from them, in the form of deductions or exemptions. Those tax expenditures become opaque channels for influence-peddling, encouraging corruption. The report also condemned the current tax code as “hopelessly confusing and complicated,” noting the high cost of searching for loopholes or employing tax preparers to do so. The code “presents individuals and businesses with perverse economic incentives instead of a level playing field.”
I agree with all these criticisms: a complicated tax code is by nature regressive. That, is the poor are the most likely to pay the nominal rate they’re assigned, since they can’t afford to hire accountants with the expertise to guide them through the Enchanted Loophole Forest. The similarly complex corporate tax code reduces the competitiveness of American firms by diverting resources away from productive enterprises and into the search for tax credits and exemptions. And of course there’s the incentive to pour money into lobbying Congress for more government largesse in the form of tax expenditures. By eliminating loopholes in the tax code, the government can lower rates for everyone, cut back incentives for corruption, and actually bring in more tax revenue than before. The big losers are the interest groups who profit from the impenetrability of the current system. And accountants, I guess. Sorry, accountants.
Simpson-Bowles estimated that simplifying the tax code would lead to $785 billion in deficit reduction over the next eight years. That’s a not insignificant amount, even against the $15 trillion national debt. But tax reform’s more important effect is to reduce inefficiencies that constrict our business climate. A clearer, leaner tax code should decrease evasion rates since audits are simpler and therefore cheaper. It should spur the growth of businesses, which can put less money into unproductive tax lawyers and more into expanding their services. Above all, it’ll allow us to gather more revenue while lowering overall tax rates -- so everyone has something to crow to their constituents about.
In fact, that’s one of my favorite things about tax reform -- a lot of people agree on it. A lot of diverse people. Alan Simpson and Erskine Bowles, the co-chairs of that committee whose report I’m talking about, are a former Wyoming Republican senator and a former Clinton Chief of Staff, respectively. (Although, really, no title could convey greater credibility than a name like Erskine, am I right?) The suggestions of the committee, including tax reform, were strongly championed during the debt crisis by a bipartisan group of consensus-minded senators calling themselves the Gang of Six. I perceive a general dearth of angry ideologues hollering about how much they hate the idea of reforming the tax code.
And that seems to be the problem with the idea. If we can’t yell about it, why talk about it at all? In a political climate that treats compromise like a stinky old sock, tax reform stays at the bottom of everyone’s list precisely because it’s on everyone’s list. As Congress sweats over ways to cut the deficit in the next few months, reforming the tax code should be a no-brainer. Democrats can point to increased government revenues that can help keep social programs afloat. Republicans can point to lower tax rates and a more business-friendly environment, both of which will help drive economic recovery. Both can pat themselves on the back for helping trim the deficit. But it’ll only happen if politicians think a piece of sensible, bipartisan progress will be an asset rather than a liability in the minds of constituents. That’s an admittedly big “if”, especially with the 2012 election looming. But this could also be an opportune moment for tax reform – the rotten aftertaste of gridlock is still strong in the electorate’s mouth. I can only speak for this voter, but after the debt crisis goat rodeo, sensible bipartisan progress is looking pretty good.
