November 16, 2010

DEDUCTIONS ARE PORK:

Left, Right and Wrong on Taxes (GLENN HUBBARD, 11/16/10, NY Times)

As Messrs. Bowles and Simpson aptly demonstrate, we are in a difficult situation in large part because we have designed entitlements for a welfare state we cannot afford. And, perhaps less obviously, they show how we have used the tax code as a vehicle for special-purpose spending that weakens both the efficiency and fairness of our tax system.

When I left my job as the deputy assistant Treasury secretary for tax policy in 1993, I left a message on my office blackboard for my successor. I wrote, “Broaden the base, lower the rates” repeatedly until I filled the entire space. I then had it covered with wax so it could not be erased. (Yes, the government charged me for my bit of vandalism. But it was worth it.)

The Bowles-Simpson report seems to have taken that message to heart, recognizing that when we provide tax advantages to spur certain types of spending — with, say, a deduction for interest payments on home mortgages — we in turn require higher marginal tax rates to raise offsetting revenue. Not only are those higher rates a drag on overall growth, but because the tax preferences are often more valuable to affluent households than to poorer ones, they also make the tax code less fair.

This is why the two chairmen suggested that the government reduce marginal tax rates for households to a range from 8 percent to 23 percent, based on income (as opposed to 10 percent to 35 percent now). This cut in rates — which should promote job creation, entrepreneurship, saving and investment — would be made possible by limiting many of the deductions that make the tax code so complicated and often inequitable.

Enhanced by Zemanta
Posted by Orrin Judd at November 16, 2010 7:19 AM
blog comments powered by Disqus
« VALETIDINIARIANS THINK YOU SDHOULD HAVE A SAVINGS ACCOUNT, NOT THAT THEY SHOULD: | Main | THE BENEFITS OF ADULTHOOD: »