Tax policy won't fix the economy on its own
Many tax policy experts spin a simple fairy tale when they talk about how to reform the tax system. They say that we just need to cut tax rates, which will expand the economy, which in turn will reduce the deficit. But unfortunately, in the real world, we face real budget constraints and a real scarcity of resources.
Many tax policy experts spin a simple fairy tale when they talk about how to reform the tax system. They say that we just need to cut tax rates, which will expand the economy, which in turn will reduce the deficit. But unfortunately, in the real world, we face real budget constraints and a real scarcity of resources.
My latest聽Tax Notes聽column which came out today (subscription-only access聽here) is basically a recap of聽my testimony聽on March 1st before the聽Senate Budget Committee.聽 It鈥檚 a written version of the script I used for my oral remarks, plus a chance to report (or vent) about the line of questioning that came from one of the Republican senators that day.
About the basic premise of the hearing, which was called聽鈥溾�漈ax Reform to Encourage Growth, Reduce the Deficit, and Promote Fairness,鈥澛營 explain that:
I then explain the problem with the tax policy 鈥渇airy tale鈥� that sounds so happy and easy:
I made three main points in my testimony regarding the goals of encouraging growth, reducing the deficit, and promoting fairness:
And the only part of the Q and A where I have to admit I felt a bit 鈥渂ullied鈥� was this:
I encourage EconomistMom readers to view the hearing video and judge for yourself whether Senator Johnson was playing nicely or not.聽 Either way, I don鈥檛 think his or Dan Mitchell鈥檚 view that marginal tax rates on the rich are already high enough to be worrisome has much basis in reality.聽 (Nor did the story that came out the very day of the hearing (March 1) about Dan Mitchell鈥檚 organization, the Cato Institute, and how much it is influenced by the Koch brothers, help Mitchell鈥檚 credibility as an objective and fact-based economist.)
Even so, I still would prefer we raise revenue by not raising marginal tax rates further and instead broadening the tax base (reducing tax expenditures) in (very easily) progressive ways.聽 The 鈥渢rilemma鈥� of tax reform is entirely possible to achieve and is actually the best way to succeed, politically and economically, in doing聽goodtax reform.